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Acquisitions one area where it's tough to be competitive

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One area where smaller publishers have trouble competing with their larger counterparts is acquisitions. Publicly held media corporations or private equity-backed firms tend to dominate the M&A arena.

"What has happened from a buyers' standpoint over the last 10 years is that the individual buyer has virtually disappeared from that market," said Larry Grimes, president of W.B. Grimes & Co., who noted that most buyers are private equity funds.

"Very few of us smaller publishers, when we bid against larger publishers to acquire something, have the finances to compete," said Peter Hoyt, president of Hoyt Publishing Co. "They'll always win."

But Watt Publishing Co. is one relatively small publisher-its top line is about $16 million annually, according to Chairman-CEO James Watt-that made an aggressive acquisition last year when it picked up Chartwell Communications in a deal that passed under the radar of most larger publishers. Watt's son Greg, president-COO of Watt Publishing, said the company is looking for "unique opportunities" to make further acquisitions.

Watt Publishing was able to complete the Chartwell deal, which was estimated to be about $5 million, for several reasons. First, it is an established company-James Watt's grandfather acquired it in 1917. Second, it had been very conservative and had plenty of cash on its balance sheet. Third, because of the downturn, valuations were low, so it believes it paid a good price for the titles. And fourth, although small acquisitions are often ignored by financiers, Watt Publishing was able to secure financing from a local bank."Before that we probably went 20 or 30 years without ever borrowing money from a bank," James Watt said.

Watt Publishing wanted to make the move for one key reason. "We were anxious to diversify the revenue streams of the company," James Watt said. Up until last year, Watt had focused on agribusiness, with titles such as Watt Poultry International and Meat Processing. The Chartwell acquisition added woodworking and furniture publications.

When asked if diversifying would dilute the company's strength in focusing on a single market, James Watt said the company still hasn't reached the size where responding to the market is a problem. In fact, spurred by Greg Watt, the company is demonstrating its nimbleness by diving into vertical search with the addition of SearchChannel technology to its Meat Processing Web site, meatnews.com. "We're very bullish on that model, and we're looking for opportunities to use it in our other markets," he said.

-Sean Callahan

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