If you lead a specialist media business there is a good chance that at some point you will either want to acquire another specialist media business or sell your own. If this is the first time you have embarked on either process there are plenty of pitfalls. But why do specialist media deals fail?
Over twenty years I have negotiated more than a dozen successful acquisitions or disposals of specialist media businesses, including getting into the weeds of contracts and due diligence. And just as many that failed. This is what I have learned about what can go wrong. Plus how you could fix it, whether you are the buyer or the seller.
1. Lack of a credible growth plan/ headroom
If you are buying a business you want to grow it and add value. When selling you need to prove there is potential. If the underlying market is sluggish or in decline, or there is not a clear plan for growth, the deal could stumble.
How to fix it: Clarity about the potential for the market served and confidence about the headroom for the new owner. A robust and believable three year plan.
2. Weak brand or market leadership
Is the media brand past its prime or not the market leader? Are commercial partners lukewarm about the value of the brand? A buyer then feels they could do better by launching a new brand rather than experience the hassle of buying and investing to reposition a tired brand.
How to fix it: Find evidence of sustained market leadership – higher ratings from customers, strong retention, achieving a premium price
3. Wobbly management team
Are the management team relatively new in post or alternatively, keen to rush for the door post sale? Are founders desperate to leave the business? These raise red flags for buyers, even if they do have senior staff ready to run it long term.
How to fix it: Founders who wish to exit need a succession plan a couple of years before sale. Convince key staff members with crucial knowledge to stay with the business.
4. Poor customer retention
A leaky bucket takes longer to fill. If readers, delegates, sponsors or advertisers churn at a high rate, then marketing and sales have to run twice as fast. Retention below 70% in any aspect of the business is a concern: is the value proposition right?
How to fix it: Enhance the value proposition for all customer groups. Incentivise sales teams on retention as well as new business.
5. Muddled portfolio
Are there products or markets in the business that lack a strategic value or the potential for profit? Could they distract the management team from focussing on the stars? Does a buyer think they will have to spend time pruning and disposing of unwanted assets?
How to fix it: Prune the portfolio before starting a sale process. If in multiple distinct markets make it easy to separate them if a buyer doesn’t want it all.
6. Poor data & record keeping
If the database is not clean, and it is impossible to generate a single customer view, buyers may get cold feet. If it is not clear exactly how commercial deals are priced and what they contain, buyers may worry they will have to unravel a tangled web of discounts and special deals.
How to fix it: Invest in modern, industry-standard systems that mean subscribers, delegates, and commercial customer activity can be easily tracked. Have clear KPIs that prove the business is well controlled. Then the due diligence process will be far less painful and inspire confidence in the buyer.
7. Distracted management team
Running a deal process can be a full time job for up to a year. If the founder is also running the operational side of the business there is a risk that the performance dips and the buyer worries about resilience.
How to fix it: A succession plan to install competent operational management. So that the business as usual continues as usual while directors or founders negotiate the deal.
8. Absent decision maker
Deals can founder when they have to be signed off by a board. Or a minority or absent shareholder has a late change of heart. Principals for buyer or seller have been known to actively use the “absent decision maker” to force a late tweak of terms.
How to fix it: Clarify all the stakeholders up front and involve them at heads of terms stage and at key points in negotiation, to flush out objections.
9. Lack of flexibility
A deal that makes commercial sense can fail if one side or the other has a rigid approach to structure, timing, earn-out, tax or jurisdiction. Or if lawyers (or boards) set unreasonable hurdles.
How to fix it: Negotiation is a dance, a step by step working out of a solution that works for both parties. Hold tight to the strategic and commercial logic of the deal and assess whether the supposed red lines of your board or lawyers are truly necessary.
10. Losing trust between principals
Last, but very often the most important reason a deal fails. If one side or another believes their counterpart is not being honest about the business or their plan then trust is lost and is extremely difficult to recover. Moving goalposts on price or previously agreed points corrodes the delicate balance of risk and trust.
How to fix it: Build a strong relationship between the principals. Ideally meet in person regularly and watch for body language. Be open and honest and avoid hiding tricky issues (such as poor IT systems or difficult employees). Emphasise the benefits to both of making the deal work. Offer goodwill gestures or olive branches or golden ladders to resolve impasses. Make every effort not to renege on agreements.
Why specialist media deals fail. And how to fix it.
In summary, if you are thinking of selling, fix most of these problems at least a couple of years before going to market. During the negotiation, accept it will take all the time of at least one senior person, especially if you are running a multi-buyer process. Focus on keeping the relationship with the other principal cordial and business-like.
If you are a buyer, check for all these problem areas before you get too deep in with lawyers or due diligence. Get to know the seller personally. Aim to negotiate a deal both are still happy with at the end of the earn-out. But be prepared to walk away if the problems are not resolved.
If you are contemplating buying or selling a specialist media business and have questions about the preparation or the negotiation, do get in touch for an informal chat over a real or virtual coffee.
About the author
Carolyn Morgan has acquired, launched, built, and sold specialist media businesses in print, digital and events. She now advises niche consumer and B2B publishers on developing new products and digital revenue streams as a consultant and NED.
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