Fairfax Media has embarked on the final stages of due diligence in a $30 million play for business journalism giant-killer Australian Independent Business Media (AIBM), as rumours of an imminent announcement snowball.
Crikey understands Fairfax has made a verbal offer of about $22.5 million for a 75% stake in AIBM — which would value the company at $30 million — and is currently combing over the online business’ books, which includes the popular sites Business Spectator, Eureka Report, Climate Spectator and Technology Spectator.
An erroneous report published by Reuters yesterday and uploaded to Fairfax websites stated AIBM was in “exclusive” talks with the ailing media giant run by Greg Hywood. However, Crikey understands News Limited is still in touch with the sale process and may launch a counter bid, depending on the outcome of Fairfax’s stress testing. Both News and Fairfax declined to comment.
An official announcement is expected towards the end of the week. AIBM chairman Alan Kohler has previously denied News is being used as a stalking horse in the discussions with Fairfax.
According to a leaked memorandum obtained by Crikey in January, AIBM generated total revenue of $8.84 million in the 2010-11 financial year — $3.64 million from the Spectator Group and $5.19 million from Eureka Report. The combined sites made $237,000, down from $541,000 in 2009-10. Spectator Group recorded a $1.67 million loss while Eureka Report tallied up $1.91 million in profit. About 55% of revenue was drawn from Eureka, a third from Business Spectator ads and the remainder from Climate and Technology Spectator ads.
Business Spectator was launched in October 2007 to partner with Eureka, which boasts 16,000 subscribers paying $385 a year for investment advice at the full rate.
The leaked memorandum stated “normalised” EBITDA in this year will rebound to $1.27 million for the group as a whole. Even assuming that outcome, the sale price represents a massive earnings multiple for a media company. However, the business is believed to be weighed down with annual owner-proprietor salary payments of a quarter of a million dollars each, with insiders describing a much better performer than the raw figures suggest.
A new Fairfax-owned entity would be expected to deliver synergies with The Australian Financial Review, the stories from which Business Spectator sometimes pick up. AIBM may well be housed under the Financial Review Group led by mid-30s advertising rainmaker Brett Clegg. In January AFR.com overtook Business Spectator in unique browsers for the first time since its 2007 launch — 210,003 to 209,405. It has since blown that lead out to over 90,000 as AFR print subscribers granted free access to the online site pile on.
Sources close to the deal say a potential model for the new entity would be sourced from Fairfax’s recent 50-50 tie-up with Antony Catalano’s Metro Media, which publishes real estate glossy The Weekly Review. Under that arrangement Fairfax granted Catalano day-to-day control of Metro Media, including its stable of suburban weeklies, but enjoys its revenue flow. The Australian Competition and Consumer Commission is expected to give the formal green light to the joint-venture in the next few weeks.
Under one proposed AIBM ownership structure, the so-called “KGB” — Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz — would keep responsibility for day-to-day management of the business, working with James Leplaw at Eureka and Nicholas Gray at Business Spectator. They would continue to write their popular columns.
Managing editor James Kirby could remain a shareholder but other AIBM stakeholders including Crikey publisher Eric Beecher and investment bankers Mark Carnegie and John Wylie (Wylie is running the sale process) would sell their stakes. Wylie stills serves on the AIBM board while Beecher resigned as chairman of AIBM in September and was replaced by Kohler.
Hywood has previously floated new digital purchases, telling the company’s AGM last year he would be looking for “carefully selected bolt-on acquisitions.” In an ABC opinion piece published in February, Kohler urged Hywood to ensure Fairfax makes a “profitable transition to being a digital company”. The alternative would be for the company to enter receivership, Kohler said.
Kohler declined to comment for this story, but has previously said the drawn-out sale process was driving him “f-cking crazy”. Crikey first revealed Fairfax’s abiding interest in AIBM on December 23 last year.
Working out how to spend $30m will drive him “f-cking crazy” as well!!
Well done to the KGB team if they pull this off. It’s been a fantastic thing they have done to go independent and make themselves a compelling proposition to their old employer.