After that, there were no other stones left to turn. We could now only wait and see what happened when the final bids were submitted.
Put the Spreadsheets Aside
Back in chicago, Mansueto had been conducting his own due diligence, while his lawyers were in New York going through the material AdMedia had assembled. They sent him copies of the documents they thought he would want to see and prepared what he calls a red-flags memo, highlighting potential problems. Meanwhile, he talked by phone with Koten, Byrne, and the two publishers, Jones and Barba, among others. Byrne and Koten sent him e-mails and offered to fly to Chicago, but Mansueto said it wasn't necessary. "I was reaching out to as many people as I could," he says. "The different perspectives confirmed my thesis that these were two strong brands that had been a bit neglected in a larger organization."
To be sure, he had less information to go on than he would normally have demanded. A disciple of Warren Buffett, he believes in doing in-depth research before investing. But in-depth research was not possible in this case, given the timetable. Then again, the speed of the process was part of the opportunity. "I thought the ability to move quickly, to make a decision with less information, gave me an advantage, because the compressed time frame would eliminate a lot of people who'd have to get all kinds of approvals." So he was willing to make an exception and base his decision largely on his perceptions of the quality of the products and the commitment and enthusiasm of the people. As a result, deciding on a final bid was as much a matter of art as of craft. "At some point, you put the spreadsheets aside," he says.
There were, of course, risks that all of the bidders, including Mansueto, had to consider. To begin with, both magazines had circulation problems that would require a major investment to fix. In addition, no one knew when, if ever, the market for business magazines would rebound. And, although G+J obviously had done a poor job of managing the publications, it was by no means clear how much better anybody else could do.
Mansueto had to decide not only what he should bid, given those risks, but how high others might go. He guessed that The Economist Group was his principal competitor. Its team in New York had been talking to lots of people, investing lots of time and money. After weighing all the factors, Mansueto decided to raise his offer to $30 million.
Because of G+J's insistence on reaching a deal by June 30, the way that a bidder marked up the agreement could be as important as the price being offered. There simply wasn't much time to haggle over the terms.
But there's more to a bid than a price. Bidders were also required to mark up a purchase and sale agreement they'd been sent, which covered such issues as when the closing would occur, which liabilities the buyer would take over, and how the employees would be treated, including the severance terms for those who might be laid off. In addition, there was a section specifying what would happen if the buyer later found discrepancies between the seller's presale representations and the facts—which matters could be contested, how much compensation the buyer could claim, how long the buyer had to make such a claim, how it would be adjudicated, and so on. Because of G+J's insistence on reaching a deal by June 30, the way a bidder marked up the agreement could be as important as the price being offered.
Any price a bidder offered carried additional risk because of the black-hole factor—the absence of audited financial statements. The terms the buyer insisted on would, in effect, determine how the risk would be allocated. For example, by increasing the amount of compensation the buyer could get for an alleged misrepresentation, or the length of time that claims could be made, the bidder could shift some of the risk to G+J. Mansueto says he tried to split the risk down the middle. He then sent his bid and the marked-up agreement to AdMedia—and waited.
Joe vs. The Economist
Although the bids had originally been due on Monday, June 13, the deadline was extended two days because the purchase and sale agreement had been sent out later than promised. On Wednesday, Mansueto spoke to Mark Edmiston at AdMedia, who told him that, while it was still early, it looked as though he was going to come out on top. The people who were handling the sale—Axel Ganz and his advisers, including Edmiston—had to do a thorough review of the markups, which were still coming in, and compare them point by point. "There were a lot of things in your contract that they liked," Edmiston said.
Mansueto talked to Edmiston again on Thursday and was told that he, indeed, was the high bidder. The G+J board simply had to approve the sale, and it was meeting on Friday to do just that. To Mansueto, it sounded like a formality.
Edmiston called back on Friday, and Mansueto answered the telephone expecting to be congratulated on winning the auction. Instead, Edmiston gave him some surprising news: Another group—Mansueto knew it had to be The Economist Group—had raised its bid to $32.75 million. (At the same time, The Economist was making a last-minute effort to reach John Byrne, figuring Mansueto must have seen value in Fast Company that it had missed.) Granted, Edmiston told Mansueto, the bids were supposed to be final, but $2.75 million was a lot of money. G+J had to consider it. If Mansueto was willing to match it, he would win the auction. "Let me sleep on that," he responded.
