MX3 Collectif Partner: Oaklins DeSilva+Phillips, Why private equity is good for the media industry.

Too often, owners of media companies are quick to dismiss private equity investors because of pre-conceived views that private equity firms cut costs, lay off staff and inhibit management teams. The movie, Wall Street, where Gordon Gekko, portrayed by actor Michael Douglas, proclaims that “Greed is Good,” helped promulgate this view.

In reality the opposite is true. Private equity firms unlock value in media companies by investing and growing these businesses, not by cutting costs. To do so, they add staff and increase expenses, while at the same time increasing revenue and the overall value of the business.

Usually only in rare instances, where a turnaround is required, will they cut costs, reduce staff and purposely disrupt operations.

Let’s look at two examples that demonstrate how private equity firms add value to media companies.

Case 1:  In 2019, Axel Springer was a leading German media company which published Bild and owned digital content and classified businesses.

Kohlberg Kravis Roberts (“KKR”) offered the shareholders of Axel Springer €2.9 billion to acquire 43.54% of the company in 2019. At the time, Axel Springer was publicly traded in Germany. KKR, one of the world’s pre-eminent private equity firms, paid a 40% premium above the value of Axel Springer’s stock, to buy out most of its public shareholders. Right off the bat, this transaction provided a superior return to the shareholders who sold their shares. But, KKR was just getting started as it partnered with the Springer family and management team.

When the transaction occurred, Reuters noted that “Springer hopes to gain greater freedom to build its digital portfolio and look for acquisitions away from the eye of skeptical equity markets.”

In 2021, KKR supported Axel Springer’s $1 billion acquisition of Politico. With KKR as its partner, Axel Springer has been able to further diversity from a print and newspaper business to a digital news and information company. I can assure you that this transformation was faster and more value producing because of the resources and guidance provided by KKR.

Recently, Axel Springer announced its intention to make the US its focal point for additional acquisitions. I believe that KKR will continue to find ways to unlock value for itself, the Springer family and the management team of Axel Springer in the coming years.

Case 2:  In 2018, Dennis Publishing was the UK publisher of The Week and a number of consumer enthusiast magazines.

UK private equity firm Exponent acquired Dennis Publishing in 2018 for approximately £166 million. This happened because the founder of the company, Felix Dennis, had passed away.

With support from Exponent, the team at Dennis went to work improving the business by unharnessing its customer data, starting new magazines (The Week Jr.) and making acquisitions. One prominent acquisition was Kiplinger, the US publisher of business and personal finance information [Full disclosure: I represented Exponent and Dennis in this acquisition].

In 2021, just three years after its initial acquisition of Dennis Publishing, Exponent sold most of the company to Future plc for €300 million, almost twice what it paid only three years earlier. And, on top of this spectacular financial return, Exponent kept some smaller parts of Dennis Publishing that were not sold to Future as icing on the cake.

Without the involvement of private equity, the transformation and value creation accomplished by both Axel Springer and Dennis Publishing would have been less successful, and perhaps even impossible to achieve. Private equity firms are all about creating value and growing businesses and in many cases do it better than anyone else. Media companies that want to grow, expand or transform would be wise to consider partnering with private equity in addition to strategic buyers.

Reed Phillips is CEO of Oaklins DeSilva+Phillips, an investment bank for the media, marketing, information and technology industries. His firm has completed 400 transactions, including over 100 with private equity investors.