Architect of EMAP and Incisive deals pays the price

The departure of Stephen Grabiner from APAX is hardly a surprise. Bright, able and very ambitious, notwithstanding when your job is to make money from media investments and you lose most of it the axe is bound to fall. Apax bought both Incisive Media and EMAP (the latter in partnership with GMG). Both businesses, although horribly damaged by the economy and an overdependence on print, remain profitable but neither have been able to climb the mountain of debt that was used to fund their purchase.

Emap is arguably stronger than Incisive.  It has a much bigger events business, is  the more profitable and although the value of shareholder equity has been largely written off, has not had to give control to the banks.

With Carolyn McCall leaving GMG to join Easyjet, Grabiner exiting APAX there is hardly anyone left who can remember what the rationale for these deals was.  Emap was supposed to be geting a cash injection to fund acquisistions.  With large losses at GMG and no Grabiner at APAX how likely is that to happen?

To grow out of  the problem requires great bravery.  Will we see Emap and Incisive reviewing their assets, closing some and selling others? Or will both businesses struggle manfully under the debt but never really get anywhere.

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Weller - Never said what was reported

In spirit of fairness, Tim Weller claims,
"Totally stiched up by STimes, I should know bettern I never said "I am pleased to be shot of Private Equity" I said very happy with new deal" on a Tweet yesterday.

Those who eat with the devil should use long spoons

Uriah Heep is New Incisive CEO

In an extraordinary interview given to The Times, Incisive Media CEO Tim Weller claims he has found his recent debt for equity deal crisis a humbling experience. Humble! In the interview the copy brags about his Aston Martin, his ski chalet and his £11m in the bank.

His erstwhile owners (who still have stake in his business), Apax, are derided by Weller for bringing no operational understanding to his business. We are glad to be shot of private equity, he says.

He claims that the level of debt was never discussed at board meetings! Isn't the Chief Executive responsible for everything? Why didn't Weller put the debt issue on the agenda. If I were running a debt laden business, I doubt I would discuss much else.

Anyway, it's nothing to do with him. Not my fault guv. I paraphrase here, but he says, "Apax showed me one slide that debt was a good thing. It seemed ok to me so I thought no more about it."

Oh come on. Weller was desperate to get off the public market. He personally made a fortune as the business went private. Now the banks have lost their shirt, Apax have lost almost everything (in the Uk business at least), and the ceo says, depsite the fact that he blames PE for all his businesses woes, he'd do a private equity deal again because he got what he wanted out of it. You can almost hear the rush of private equity feet queing up to get some of that action.

I should think there are some lids blowing off the heads of APAX execs.

Meanwhile in another interview with Paid Content, Weller says all is well with the business and he doesn't need to make any more cost cuts oe sell off any assets. Yeah right. I wonder if the banks agree with that. They won't be interested in growth and aggressive expansion. They just want some of their money back.

There are moments when bumptiousness and larger than life straight talking can serve you well, but when you have laid off hundreds of staff, supervised the loss of your shareholders money, and the lenders have taken a big haircut, it's probably a good idea to go to work in the Mondeo rather than bragging about the Aston and the Ski chalet and to exude a bit of genuine humility.

And finally, one article reports that Helen Alexander is to be Chairman. That would be odd. The banks will want the chairman to be on their side, to hold the CEO to account. Helen A did a fantastic job at The Economist, but she is an old mate and admirer of TW's isn't she?

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RBI's Jones says, "Dont Panic!"

The Summer holidays are well and truly over. Last week Emap started a senior management cull. Incisive Media got broken in two and now RBI declares a further round of urgent cost savings.

Global CEO Keith Jones, may have been lying on a sunbed somewhere hot and sandy, dozing after a good lunch when he suddenly sat up with a jolt of realisation that his business has more costs than it can live with.

Most people have thought that RBI has rather too much management rather than too little. Too many layers slow up decisionmaking and discourage risk taking. We might exepct some meaningful attempt to correct this. Jones says in his note to staff that, in terms, he has run out of patience with duplicate costs. I guess, in code that means, if you are a manager who eports to someone who reports to someoone who reports to someone who makes a decision, some of the people in the middle are going to be in the queue for a pink slip.

Jones also says that profits must grow by at least the rate of inflation. That means, whatever the rate of inflation, in real terms no growth at all. He also has an ambition to get 50% of his revenues from online. He can achieve this in two ways. WAit for the magazines to die off, or make some brave and radical decisions. His demeanour says he is ready to do this. He has had nine months to think about the plan. He might not have declared it all yet - but a plan he will surely have.

For RBI employees, who have strong union reps and don't much like change, this will be scary. The right choice for them all is to embrace change and not to shun it.

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Incisive Split in Two as Banks Take Control

After very lengthy negotiations with the banks who funded the growth and MBO of Incisive Media it looks as though a conclusion is close.

Ambitions to be a mega business media company, long part of CEO Tim Wellers desire, are over. The business is being split in two. The US business, which includes American Laywer will have seperate management and different ownership from the UK based business, which Weller will continue to run. The debt structure was different in the US and different terms have been agreed.

The US piece will be owned 49% by the banks. IN the UK the debt mountain of around £400m is likely to be halved and in which case private equity owner Apax are all but wiped out. That part of the deal is, we understand, not yet concluded.

In his note to staff last week Weller claims that his business is still operationally profitable.

His only job now, and the only metric the banks will be interested in, is how fast he can repay the remaining debt. This is no small task. The UK business has some very troubled assets. The dependence on legacy print is far too high. The overhead is too large for a sustainable future. Wellers note says that he "cannot wait to get back into the business" and that his business has "leading brands and "a proven strategy". What he doesn't say, is that that his strategy was proven in a world that no longer exists. He needs a new strategy if he is to stand a chance of meeting his banks expectations.

Weller and his team will not be short of things to tackle and his new owners will rightly be harder and more impatient task masters than any his business has had before.

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Incisive Still Subject of Rumours

Bill Pollack, the head of the US part of Incisive Media said this on his own blog,
"You will by now have seen Tim Weller's email to the full staff at Incisive Media responding to an article that appeared yesterday on the Financial Times' website. Just so we're clear, that article primarily concerned the refinancing of Incisive UK's debt and reported various rumors which may or may not prove to be true"

So the deal is not yet done. There are numerous rumours around about how the negotiations are going on the UK debt. One thing is certain, APAX and the banks have lost a lot of money. Let's hope the management strategy, if the management survive or chose to stay, is better than "we are waiting for the market to recover".

Also note that the US business is financed seperately from the UK business. The US business which includes Risk and American Lawyer is arguably in s abetter plac than the ad based print business in the UK, hence Pollacks distancing.

Banks Take the Helm At Incisive

The FT reported yesterday that the banks who leant the debt that enabled Incisive Media to grow like topsy are in deep talks with Apax and the management about what to do next. Although Apax want to retain some equity and are prepared to put some more money into the pot the banks appear to have lost patience and now own Incisive in all but name.

You can bet that the FT numbers are not 100% correct but it looks as though Apax will end up being diluted from owning around half the business to owning about 2% of it. The management are keeping something north of 10% (which is a lot given that the banks have lost hundreds of millions and Apax lost its shirt. This isn't a done deal yet and things could yet change.

We should be interested not only because Incisive is a big b2b player but also because we as tax payers own RBS, the main lender. I am sure we all want Tim Weller and crew to make some more money, but lets hope not too much of it is ours.
;-)

Five Reasons to Temper Cheerfulness in B2B

The general rise in business confidence filled the pages of the Sunday newspapers business sections at the weekend. Share prices have risen in the last few weeks reflecting a growing mood that the worst is over. This is no time for media owners to breath a sigh of relief however.

Even if we accept that this is the bottom of the cycle, it will be at least a year before there is any recovery in the recruitment market. If display advertising recovers at all it will be slow and never to the levels we have previously seen. The demand for online solutions has not gone away and the the revenue models for thes businesses is for most media companies unproven, and even when it is proven its scale will be smaller than the old print model.

Incisive's Tim Weller was speculating at the FIPP conference that the days of the controlled circulation model are numbered, Rupert Murdoch has postulated that his business will move to paid content model (It is often unwise to bet against Murdoch - but surely this hope over experience) Thomson Reuters are veeling confident in their future, and the events model for the likes of UBM is not yet a busted flush and Reeds high value infomation model is dull but solid. But let nobody think that all is well.

Check you business out against these simple questions,
1) Does your business have a lot of debt?
2) Does your business rely on print advertising for more than 30% of its revenue?
3) Is your online revenue less than 25% of your total revenue?
4) Is your total revenue/employee less than £100k/year
5) Do you have the same proportion of your turnover as overhead as you had last year?

If you answer yes to all more than three questions then there is considerable pain yet to be felt.

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Incisive and Emap Improve Profits

The Independent reported at the weekend that both Incisive Media and Emap, the Apax owned debt laden companies, have improved their profits. As both companies are private, we cannot see the detailed results, but we must surely assume that this is driven by cost savings. Apax will invest a further £20m in Incisive to retain control if they go ahead with a proposed debt for equity swap with lender RBS.

Incisive Media has previously published its results as recommended by the Walker Report. It is late doing so this year. It would look cynical for them not to honour that commitment just because times are tough.

Incisive Media Worthless - Ingenious

The Sunday Telegraph reports that Ingenious Media has written off its stake in Incisive Media. They were part of the investment fund put together by Apax to do the deal to buy Incisive when it went private. With so many of the large business media companies being in private hands we can't see how bad trading really is. Management at Incisive Media claim the business is still very profitable, but we have to conclude, that Ingenious at least has concluded that the outlook is not great and the mountain of debt is too steep to climb.

We would agree with that view. Incisive will have to do three things. A refinancing/ debt equity swap/injection of funds from Apax is now almost inevitable. Second, like other business media companies, a move to a new low overhead model is now urgent. Waiting for a recovery just will not do. Third, Incisive should consider the sale of some assets - even if not ideal, to focus on a smaller number of core competencies and to pay down some of its debt.

Incisive Wipes 2% from Payroll Costs

Incisive Media, on of the debt laden b2b houses has told staff to take a weeks unpaid leave at Christmas. According to Press Gazette this will save £1m this year, implying that the total payroll costs are £52m. This initiative is to minimise redundancies according to UK CEO James Hanbury. The maths says the opportunity cost is 30 jobs. Like so many of these initiatives, whilst necessary, this approach does not address the fundamental change in the economic model that will be required for long term success.

On a technicality, Incisive are reducing pay each month as the mechanism to pay for this, so as to avoid a very small payment to staff at Christmas which is when the leave has to be taken. Deductions from pay require the permission of the staff. I doubt that many staff would say no under pressure to save their colleagues jobs but what if someone refused to give the company permission to make a payroll deduction? Does anybody know what the legal position of the Company and employee would be?

Incisive breaches Covenants

Incisive Media breached its bank covenants in December. With £400m of debt and weakening trading the options are limited. Either Apax will have to inject more capital or there will be a debt for equity swap.

Either way all media businesses with high leverage will be sweating. On smaller deals banks have been prepared simply to rewrite the covenants (for a fee) but on this one, the bank will want to make sure it does nothing to increase its risk exposure.

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Business Media Should Merge Back Offices

All of the business media publishers are facing unprecedented challenges. The economic downturn, long term decline in magazine profitability, a threat to profits from events, the challenge of making money from the web and so on.

Publishers long since worked out that there was no competitive advantage in running their own circulation management systems or print plants. Exhibition organisers long since contracted out their on site registration. But why has nobody thought of eliminating permanent costs from other areas of hygiene activity?

One of the benefits of APax owning both Incisive and Emap was the merger synergies. They never happened as crunching the two businesses together would have required a refinancing of the whole deal - and you can understand why that didn't happen. But what is to stop these two businesses sharing back office overhead in finance. Locate the credit cotnrol desks for both businesses in a single location where labour is cheaper than in central London, with one group management providing services to both companies on a SLA.

If it could done for these two companies, why not invite RBI, UBM and Informa to join the party? Each party would own an equity stake in the service company which would be run on a cost plu basis, with any profits returned to the shareholders. Make an agrement to protect the confidetiality of data. Consider inviting smaller publishers to enjoy the benefits of the solution for a fee. Cost savings and a profit share too!

Business media comapnies have worked together before. Tower, the circ bureau grew its business in the nineties on the back of a concord agreement with a cadre of blue chip publishers. The Excel Exhibition Centre was built with funds secured from RBI Emap and UBM amongst others.

How big are the savings? Well lets imnagine that back office finance costs 5% of turnover. Lets pretend we could save 20% of that. If we could process £1b of turonver thats a saving of £10m a year or put another way - on a 10% average profit margin, the equivalent of offsetting £100m of revenue loss. Mmmm.

Elephants Trashing the B2B Room

An annonymous comment posted to this blog claims that cuts at Incisive Media are deeper than first thought. Many more than 50 jobs are going he/she claims, with deep cuts in editorial.

If cuts are to be made, cut deep and cut early would be my advice. It is also plain that the downturn is getting worse and getting worse quickly. Incisive are very exposed to the financial sector so they are bound to be hurting. Even businessses with large events will start to feel the pain soon. As this review of Paid Contents recent conference points out, not only are marketing budgets likely to be cut, but attendees will be under increasing pressure not to travel.

The article makes some important points that leaders in B2B will have to address, what the author calls, the elephants in the room. I agree. Here is my summary of them and some of my own.

The Elephants

If we have been propping up the profits of failing magazines with events and awards during the good times, what will happen to the business when events and awards get squeezed in a recession?

If the future is digital, how can we build businesses that have enough scale to replace revenues lost in the magazine decline?

If we can't build digital businesses of scale, how are we going to afford the levels of overhead we have in our businesses?

If online advertising is not sizeable enough what makes us think we can build our businesses with subs revenue? Isn't this hope over experience?

Why do we keep applying the old revenue models to the new digital paradigm? What is the new model?

If you want to keep an eye on whats being discussed, Rex Hammock is blogging the conference here.

Soft Softworld

Incisive Medias Softworld show suffered from low attendance a source tells me. This is interesting as it is one of the first big shows to take place after the chaos for the last few weeks economic news. The event took place this week at Olympia 2. There might be local reasons for a problem but we might wonder if attendance at trade shows is less of a priority for b2b buyers in a downturn. If that is true, the safe haven of exhibitions (UBM?) could be a more dangerous place than its advocates believe.

Incisive Cuts

The Guardian reports that Incisive Media is cutting 50 jobs. No surprise really given their exposure to the finance sector and print advertising. Hardly news worthy either. Also misleading. The Guardian says this represents 6% of the workforce. It doesn't. Incisive does not employ 800 people. It employs more like 2000 (in the original post I said 4000- thanks to one of our readers for the correction). I think the truth is, 50 jobs in the UK are being cut. The actual number of redundancies given the vacancy provision is probably a handful.

Having said that there are probably cuts being snipped in their US business too.

The Future of Publishing, Computing the Magazine

We noted the merger of IT Week and Computing a few weeks ago. Now its publisher Graham Harman, is interviewed in Press Gazette and his argument dissembled by Peter Kirwan.

Harman says lots of things in his interview with which this author would agree,

“You can’t just stick to the old practices and say ‘that will do’.” and

“You have to say to yourself: ‘If I was launching into this market now what would I do?’” and

“We have seen the writing on the wall the way that the revenue models and the way that the information needs of our readers has changed, and we’ve decided that we need to do this now"

What happens in the tech sector is often a lead indicator for what will happen in other b2b markets - so we should take all this seriously. Twenty years ago, the professional IT press was hugely profitable, with 50 to 100 pages of job ads published each week in each of the two main weekly titles. Today, Computing is a shadow of its former self with just a couple of pages of job ads and a declining display revenue.

I am beginning to think that Peter Kirwan and I should go into businsess together, as I find it hard, as usual, to disagree with his point that if Incisive was to act in the way its analysis suggests, the weekly magazine would be killed off today. No one, he argues, would launch a weekly IT title today so why keep the ailing beast alive? There is more to it than wanting to squeeze the last drop of profit from print though. There is also pride. Computing has fought a bitter war over thrity years with Reed rival CW and, rather like competing generals in WW1 trenches, nobody is going to give an inch to the other even nothing is to be gained by winning a point of share or foot of territory from the other.

What is need here is some management bravery and to honestly answer the challenge that Harman puts, which is, in terms, to imagine what you do if you were launching today - and then do that. It is only a question of time before Computing closes. It might not be this year or even next, but close it surely will. In the meantime huge management time and effort will be devoted to keeping its heart beating at the expense of developing the new model.

Incisive are showing the first signs of realising that the publishing game is up. Theyhave noticed that print is dying. They believe it but haven't yet come to terms with it. They have a real opportunity to set the lead and build a new future whilst their competitors are still pretending that this is just a cycle and a course of anti biotics will cure them. Will they take it? Will any of you?

More on Reporter Going to Jail...

Roy Greenslade, being a proper journalist (unlike yours truly) bothered to phone the regulator to get their side of the story. According to Roy, the regulator claims that the information is restricted to protect those being investigated. Yeah ok, but in normal criminal matters it is possible to report that an investigation is being made. It is also legititmate to report on aspects of the investigation providing such reporting does not prejudice the outcome of a trial.

It is not as if the reporter in question has published the "restricted information" itself. Why should pension companies enjoy greater protection than a private individual faced with an investigation into something he or she may or may not have done. Are pension companies really worthy of more legal protection than say, John Leslie?

If the Pensions Act test is merely that information it deems to be restricted (who arbitrates on what is restricted?) may not be used or referred to then this really is little more than the state deciding what we can and cannot know.

Incisive Media Journalist Threatened With Jail

Incisive Media has got into a very public spat with the pensions regulator. According to a statement by CEO Tim Weller, a junior journalist was threatened with jail, by phone, unless she revealed her sources for the story.

The original story is here. My understanding is that the facts of the story are not disputed. The pensions regulator argues that "restricted information" has been misused.

In his robust defence of the journalist, Weller says,
"The right of journalists to protect their sources is vital if the media is to be able to do its job properly," Here, here.

I am in no position to argue the point of law. But here are my thoughts. The right of a journalist to protect sources is not absolute. A matter of national security for example might lead both morally and legally to a journalist revealing a source. So we cannot defend the journalist simply by getting on our high horse. The question we must answer is a moral and legal one. In this particular circumstance is it right for the journalist to protect her source? First, is the public interest served by the publication of the story? Second, does publication compromise the possible future prosection of a criminal offence?

The regulator relies on the Pensions Act 2004 in which clause 72 states,

"The Regulator may, by notice in writing, require any person to whom subsection (2) applies to produce any document, or provide any other information,"

The Act also prohibits the release of "restricted information". I cannot offer a legal opinion, but it seems to me that if any offence has been committed, it is by the person who has released the information - not the journalist - and in any event it would have to be demonstrated that the information was "restricted" and that the release of the source by the journalist was in the public interest.

Second, the clause allowing the regulator to demand documents etc, appears in the legislation in the section about investigation of premises and so on. It seems clear that the intent of the law was to enable the regulator to demand access to documents held by pension companies it was investigating, not journalists to whom information about an investigation may have been leaked.

In any event, the core facts of the matter are readily ascertainable from the public record for as the original story says,
"The company no longer appears on the regulator’s approved panel of independent trustee firms listed on its website."

In other words, the action taken by the regulator is visible to all. The matter at dispute is the access the journalist appears to have had to "restricted documents".

Morally and in my worthless opinion, Weller is right. On this occasion, the journalist ought to be able to protect her source.

There is precedent. Many years ago a trainee journalist at what was then Morgan Grampian ended up in court to prtoect a source, and lost being fined £5000, and in a case between Elton John and The Express in 1990, Lord Justice Wolf said in his summary;

"When orders were to be made requiring journalists to depart from their normal professional standards of confidentiality for their sources, the merits of their doing so in the public interest had to be clearly demonstrated. The minimum requirement was that other avenues to find the source had been explored". In the Elton John case the court again ruled that the source should be revealed, for reasons not relevant to this case.

It seems to me, that at this early point in the Incisive example, de minimus, it is for the pension regulator to demonstrate that it has made efforts to trace the source by other means, and that identification of the source is in the public interest. The publisher should stand firm.

IT Week Has Closed.

As we reported yesterday, confirmation from Press Gazette that IT week has closed/merged with Computing. Right decision taken five years too late.

I was sent this quote from the Reed internal bragging machine;

"The decision did not surprise Computer Weekly's head of display sales Duncan Kirk who has seen the market getting tougher and tougher: "There is no doubt that as the weakest of the three weeklies IT Week has suffered the most and of course we haven't exactly made life easier!""

Nothing like a bit of gloating as your rivals die and lose their jobs. But watch out - as they say in the National Lottery, it could be you next.