Keith J. Kelly

Keith J. Kelly

Media

A $400M deal may be a hard sell for Forbes

Forbes Media will have a tough time meeting its avowed goal of selling itself for $400 million, industry observers tell Media Ink.

“There is no frontrunner,” according to one insider, who said there are probably 10 to 15 players kicking the tires.

If it gets sold, the best guess is that it will go to a wealthy overseas buyer, attracted by the magazine with the motto “The Capitalist Tool,” or a wealthy vanity player along the lines of Jeff Bezos, who bought the Washington Post for $250 million, and John Henry, the new owner of the Boston Globe.

“It’s a better brand than it is a business,” said one investment adviser, who has not looked at the books being sent around by Deutsche Bank.

Forbes’ reputation in Asia, where it has seven licensees, is probably stronger than it is in the US.

But that may not be enough.

“I do think $400 million is the very top limit and suggests an unrealistic multiple,” said Stewart Pinkerton, a one-time managing editor at Forbes who left in 2009 and went on to write “The Fall of the House of Forbes” in 2011.

He added, “I’ve felt all along the most logical buyer would be overseas.”

The prospect of a busted auction looms large, although sources say the Forbes family is putting on a confident face.

Elevation Partners, Forbes’ minority partner, is a preferred stockholder as disclosed in a recent article by rival Fortune.

That means that Elevation and its partners, which include Irish rock star Bono and Silicon Valley investor Roger McNamee , have to get all their money out — now estimated to be around $260 million — before the Forbes family can grab any more of it.

The only incentives to sell the family jewel that has sustained them through three generations (since its founding by B.C. Forbes in 1917) is clearly getting Elevation off their backs and dividing the spoils among the 50 family members who would get a slice today.

But getting a second big payday will be tough. Strategic buyers are believed to be rare to nonexistent.

Condé Nast, which famously had its CEO Chuck Townsend approach family patriarch Steve Forbes prior to Condé launching its ill-fated Portfolio financial venture, is not interested in returning to the market.

Townsend declined to comment, but one well-placed insider said there is no interest in it.

“They approached us, and we turned them down,” said the insider, who is close to the Newhouse family, which owns Condé Nast.

Most of the conventional strategic publishers all appear to have good reasons not to do a deal.

Time Inc.’s new Chief Content Officer Norm Pearlstine — who worked at Forbes for a few years in his salad days — said some nice things about the Forbes’ network of bloggers at a recent industry forum.

And Time Inc.’s Fortune does need some help in rebuilding its Web presence since its current digital outlet with CNNMoney expires on May 31.

But as one investment banker said, “The tough part would be justifying that kind of a deal to Wall Street after they are spun off from Time Warner.”

Hearst has not had an easy time digesting Hachette Filipacchi Media and sold off its interest in SmartMoney several years ago.

Meredith simply has no interest in the category and, in fact, was trying to leave business magazines out of the deal entirely when it was discussing a merger with Time Inc. earlier this year.

“To get the $400 million, they need to be generating close to $50 million in Ebitda,” said Reed Phillips, an investment banker at DeSilva+Phillips.

Few observers think it has rebuilt itself to that point of profitability over the past three years after slipping into the red in 2009.

CEO Mike Perlis in his Nov. 15 announcement boasted that Forbes Media had its best year in the past six. But that means it still had not dug out from the ravages of the financial downturn prior to the arrival of Bono and Elevation in 2006. Revenues are estimated to be less than $200 million.

If it does sell, it will be because it has pulled off a very difficult transition and convinced buyers that it is more of digital company than a print company.

Digital ad revenue is said to account for 55 percent of its ad revenue, while print revenue accounts for only 45 percent.

Forbes has increased its monthly unique visitors during the past three years from 12 million to 28 million, according to comScore.

But sheer traffic numbers seem to have lost a lot of their luster in the digital world as the price of digital ads continues to drop.

Part of the tilt to digital is because digital ad revenue is expected to rise 25 percent this year.

It also comes because of the deterioration of print ads in the brutally competitive business category, which shows no sign of slowing down.

Through mid-November issues, Forbes’ print ad pages were down 10.6 percent, to 1,426.21, according to Media Industry Newsletter. Fortune was off 4.6 percent to 1,235.18, and Bloomberg BusinessWeek was off 10.4 percent to 1,182.8 ad pages.