Recent years have seen a spate of magazine distress sales, but as the first green shoots of a rebound are being seen, there are at least some people out there who are willing to pay real money for print properties. Hearst Corp. has now officially offered to pay the equivalent of about $890 million for Lagardère’s international publications—far more than the $1 that had become the going price for iconic, yet faltering, magazine brands.
The price represents about 13 times EBIT (earnings before interest, taxes)—close to the high point of multiples paid for magazines just before the recession, estimated Reed Phillips, managing partner of media investment bank DeSilva & Phillips.
The price offered reflects Hearst’s belief that it can improve the properties through cost-cutting, however.
“On the surface, it appears to be high, but that’s because the earnings of Lagardère are soft,” Phillips said. “The true multiple is what Hearst can do with the synergies.”
With the binding cash offer made Jan. 31, Hearst—parent of Cosmopolitan, Esquire and other titles—would add over 100 international magazines for a total of more than 300 overseas editions. The deal, rumors of which were first reported by Adweek, would make Hearst the No. 2 publisher in the U.S. in terms of ad pages and, it’s believed, the biggest international publisher by number of editions. The sale is expected to close in the third quarter of 2011.
In the U.S., the deal would include Lagardère’s unit Hachette Filipacchi Media, publisher of Elle, Woman’s Day and Car & Driver. There, eliminating overlap in back-office functions like IT and circulation could produce 15-25 percent in cost savings, Phillips said.
Overseas, Hearst could find synergies in the markets where it would publish multiple titles. It would acquire publishing rights to Elle in 15 countries including the U.S., Russia, Spain and the U.K. Hearst already publishes Cosmopolitan in 14 of those countries and Harper’s Bazaar in 11.
“Hearst gets merger benefits in the states,” said Andy Buchholtz, managing director of investment bank Buchholtz & Co. “And, they’re betting on international print, that it’ll continue to thrive.”
The deal, which has been said to be on and off for much of the past year, was unusual in that Lagardère, which is leaving the magazine business to focus on higher-growth areas, insisted on maintaining editorial control over Elle.
In addition to the French edition of Elle, Lagardère would retain ownership of the Elle trademark around the world and its Elle-branded goods and services around the world. It will also continue to manage Elle licenses in 25 countries including Brazil, Denmark and Korea.
The deal includes some other provisions. Lagardère said it would “guarantee brand consistency” and that strategic decisions in the 15 markets where Elle would go to Hearst would be done “in consultation with Lagardère.”
Marie Claire, for the most part, would remain part of Lagardère. Hearst would own stakes in three international editions out of more than 20 and continue to jointly publish Marie Claire in the U.S. with Lagardère.
The first mega-magazine deal poised to happen in a while, a Lagardère sale could spur further M&A activity by giving sellers confidence in the market.
“It might be the beginning of massive consolidation,” Buchholtz said. “Everyone who’s got financial backing is in play some way.”
One of the first moves that could come out of the sale would be directly related to it. Hearst is expected to spin off the auto titles it’s purchasing from Lagardère, namely Car and Driver, Road & Track and Cycle World.