In four weeks, we gained years' worth of insight into Inc., into our market, and into opportunities we might pursue. Going through the sale process draws out information you probably can't get any other way.
Regardless of the outcome, I knew we'd learn a lot, mainly because G+J had decided, at Denson's urging, to put Inc. and Fast Company up for auction. The sale of a company is one of the most intense educational experiences you can have in business, perhaps second only to going through bankruptcy. Not until someone else wants to buy your company do you find out what you really own, as well as how much it's worth. Although we on the staff didn't own Inc. (except in a psychic sense), its sale was bound to teach us plenty about the nature and value of the business we'd helped create—and what other people could imagine doing with it. And we were not disappointed. In four fast weeks, we gained years' worth of insight into Inc., into one another, into our market, our competitors, opportunities we might pursue, and potential partners we might work with. Afterward, Koten mused that even with all the trauma, it might not be a bad idea to go through such a process every now and then just because of the valuable information it draws out.
In our case, there were five unusual factors that would inevitably play a major role in determining the outcome:
The first was the fire-sale factor. By insisting that a deal be struck within five weeks, G+J automatically limited the field of potential buyers and tilted the odds in favor of some and against others. That's because a business auction is not like an auction of, say, antiques or art. For one thing, it unfolds in stages. It has to because due diligence takes so much time and effort on all sides. You need a preliminary round to identify the serious bidders, followed by a second round in which the finalists spell out not only how much they will pay but the terms and conditions under which they're willing to pay it. If the bids are close and the terms are similar, there may be more bargaining after that. To be certain of having a deal by June 30, G+J would have to schedule the preliminary round for the beginning of June, less than two weeks after the initial announcement and scarcely a week after the offering materials—collected in the "deal book"—were sent to interested parties. That effectively eliminated anybody who didn't already know the magazine business and have immediate access to a lot of cash.
The second factor was the state of the market. Since the bursting of the Internet bubble, business magazines have been in a deep depression. Overall circulation in the category has dropped, and advertising pages have declined. Many of the magazines most closely associated with the boom have disappeared. Two notable survivors—Fast Company and Business 2.0—are still around mostly because they've been owned by big companies (G+J and Time Inc., respectively) that have been willing to cover perennial losses of millions of dollars.
A third, and related, factor concerned the linkage between Inc. and Fast Company. G+J was insisting that the two be sold together, along with their websites, conference businesses, and ancillary operations. Buyers would not be able to cherry-pick. That condition affected the bidders in different ways. Some, for example, wanted only the websites, which were profitable and growing. Others wanted only Inc. and its related businesses, which also were profitable. Fast Company, meanwhile, was losing money and had struggled to define its niche, but G+J insisted it was a package deal or no deal. This scared off some people and forced others to modify their bids and strategies.
Fourth, there was the black-hole factor, which might also be called the private company factor. The two magazines had not been operated as separate businesses but as units of G+J USA, and neither one had the audited financials that would normally be an important part of the offering materials. That's not unlike the situation would-be buyers often face when they decide whether, and how much, to bid for private companies. Because the bidders don't have access to the quantity and quality of information they would have if they were evaluating a public company, skill and intuition and even luck play a larger role. There's more opportunity for shrewd investors to find hidden value that may not be evident to other bidders. In addition, a buyer's own assets are more important than they might otherwise be. If the buyer has particular business skills that others lack, he or she may be able to project better results, which would justify a higher bid. To be sure, it's also true that the risks are greater when you buy an unaudited company.
Last but not least was the Axel Ganz factor. Ganz, who works from Paris, is the architect and former president of G+J's international magazine division, although he'd recently scaled back his activities, becoming president of G+J AG's magazine division for France and the United States. A legendary figure in the industry, he had pushed hard for the acquisition of Inc. and the women's magazines (although not Fast Company), and—as he neared retirement after a successful career—he had to be terribly disappointed over the failure of G+J USA. I had never met Ganz, but Koten knew him reasonably well and believed that his personal view of the magazines' value, his contacts throughout the industry, and his own emotional state as he neared retirement could affect the sale, though exactly how was hard to say. "There's a human side to Axel that's important here," Koten said early on. "He knows a lot of big players in the industry who might think they could use their personal influence with him to gain an edge. It's a wild card."
