Time Inc. Acquisition of Magazine Publisher in Mexico Reflects Global Trends Driving Mergers and Acquisitions

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M&A experts at AdMedia Partners say global business trends behind Yahoo Â? Alibaba, IBM - Lenovo, and CNOOC - Unocal are impacting media and publishing.

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Mergers and acquisitions are increasingly being driven by business trends such as globalization, the necessity to find unique competitive advantages, the development of worldwide branding, and the sourcing of content from anywhere to distribute everywhere.

Time Inc.'s acquisition this week of Grupo Editorial Expansión, Mexico's second largest magazine publisher, is representative of global trends driving mergers and acquisitions in the media industry, according to investment bank AdMedia Partners who advised Grupo Editorial Expansión. Mark Edmiston, who led AdMedia's deal team, said, "Mergers and acquisitions are increasingly being driven by business trends such as globalization, the necessity to find unique competitive advantages, the development of worldwide branding, and the sourcing of content from anywhere to distribute everywhere."

The expansion of Time Inc. into the Mexican market is driven by a global restructuring of the media industry. Despite being the largest magazine publisher in the United States, Time Inc. has relatively few assets in international markets. With the acquisition of Grupo Editorial Expansión, the company is able to establish a unique competitive position in a rapidly expanding part of the world.

From its new position in Mexico, Time Inc. can export successful US brands, extend current and future Expansión brands to the rest of Latin America, and develop properties for export to the growing Hispanic (predominantly Mexican) population in the United States.

The Mexican market, 12 years post NAFTA adoption, has grown from simple assembly manufacturing and exporting to advanced, added-value manufacturing, and in so doing, has attracted a business community dominated by major multinationals. The combination of the world's 12th largest economy with a rapidly emerging, well-educated middle class has made Mexico among the most secure regions in the world for investment after the U.S. and Europe.

The sale by Gruner+Jahr USA of magazine properties Family Circle, Parents, Child, and Fitness to Meredith, and the July sale of Inc. magazine and Fast Company to Mansueto Ventures, LLC, reflect the same global restructuring despite the fact that a foreign owner sold US assets to US buyers. This Bertelsmann subsidiary decided to close its US operations in order to re-deploy assets in parts of the world such as Eastern Europe and Asia where it believes it has competitive advantages that it did not have in the American market.

Recently released data by Thomson Financial shows worldwide-announced volume of mergers and acquisitions for the first six months of 2005 increased 35% to $1.2 trillion, up from $891 billion in 2004. Cross-border activity accounted for one third of global M&A volume over this time period, totaling $405 billion.

As another example of a cross-border media related transaction, in June, AdMedia Partners sold Taylor Rafferty, a leading American global investor relations firm, to Xinhua Finance, China's premier financial services and media company.

In this new landscape it is no longer just the more developed nations extending their reach over the less developed. China, for example, figures prominently. While China National Offshore Oil Corp. (CNOOC) has withdrawn its bid for Unocal, and the proposal by Haier to acquire Maytag has been withdrawn, acquisitions such as the PC division of IBM by Lenovo have elevated the debate over foreign companies, especially Chinese ones, acquiring American companies. Of course, globalization can go the other way as well, as was the case in Yahoo's acquisition of a minority stake in China's Alibaba for a total transaction value of $4 billion.

These mergers and acquisitions have been dominating headlines because of the issues related to the foreign ownership of national security assets and household brands. However, the real debate should be about the shift of wealth and structural strength to global competitors. China's Central Bank, as of December 2004, held $223 billion in US Treasury securities, and its foreign currency holdings hit a record of $711 billion in June, having added $20 billion to its reserves in June alone, and more than $100 billion thus far this year.

Chinese companies are making their presence and competitiveness known within the global mergers and acquisitions market; however, the Chinese are not alone. The growth of capital reserves is pervasive in Asia, even in Japan, despite its slow growth economy. This rapidly increasing accumulation of capital requires that investment outlets be found, thus sparking a worldwide search for acquisitions.

The message to be understood by American companies: prepare for ever more active and aggressive buyers in the global mergers and acquisitions market. Even companies as large as Gruner+Jahr and Time Inc. need to review their holdings and opportunities on a global basis. As global competitors arise, AdMedia Partners advises that businesses need to create a diverse breadth of products while concentrating on and properly managing their current resources. In this growing and evolving environment, US companies need to develop a global M&A strategy that maximizes growth, manages risk, and minimizes negative impact from competitors (both corporate and nation-state).

Although the prominent and recently attempted deals are the ones that grab the public's attention, these trends are impacting middle market M&A, as can be seen in the US media and publishing industries and evidenced by AdMedia's recent high profile deals.

Transactions completed by AdMedia Partners in the last two months include:

  • Representing Grupo Editorial Expansión, Mexico's second largest magazine publisher, in its acquisition by Time Inc., a subsidiary of Time Warner.
  • Representing Gruner+Jahr USA in its sale of Inc. magazine and Fast Company magazines to Mansueto Ventures LLC.
  • Representing Dynamic Logic, the leading independent marketing research company, in its acquisition by Millward Brown, a unit of WPP Group Plc.
  • Representing Taylor Rafferty, an independent global investor relations and financial communications advisor, in its sale to Xinhua Finance, China's premier financial services and media company.
  • Representing Interweave Press in its acquisition by Aspire Media, a newly formed magazine entity backed by private equity firms Frontenac Company and Catalyst Investors LP.

About AdMedia Partners

AdMedia Partners (http://www.AdMediaPartners.com) is a leading boutique investment bank that provides middle market mergers and acquisitions advisory services to media and publishing, advertising and marketing services, and related internet businesses. Founded in 1990 and located in New York City, the firm has completed over 100 transactions since 1999.

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Mark Edmiston
AdMedia Partners
212.759.1870
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