Mansueto also professed to be a fan of the magazine, as Koten discovered when they finally connected. On June 6, the day first-round bids were due, Byrne had told Koten about Mansueto and said, "You're going to love this guy. You should call him." Koten was already familiar with Morningstar from his days as the editor of Worth magazine and could imagine why Mansueto would be attracted to Inc. and Fast Company: They were subscription-based information services companies, not unlike Morningstar. As an Inc. 500 CEO, moreover, Mansueto certainly understood Inc.'s market, and it was clear that he ran the kind of values-driven company that Inc. liked to hold up as a model. Granted, there was a possibility that Mansueto would move the magazine to Chicago. That would be hard on the staff, but Koten could live with it: He'd grown up there.
Ray Shaw was a little harder to read. When he and his son, Whitney, arrived at AdMedia's New York office for their due diligence meeting, Shaw greeted Koten warmly. "The last time I saw you, you were a cub reporter at The Wall Street Journal," he said. He and Whitney spoke for an hour or so with Koten, Jones, and Sussman, who all came away convinced that Shaw could turn Inc. into an extraordinarily profitable enterprise. He seemed to do that with everything he touched, and the opportunities for synergy between Inc. and American City Business Journals were too numerous to count. Moreover, these were opportunities, Koten noted, that he would want to explore even if Advance didn't win the auction.
But what a sale to ACBJ would mean for Inc.'s current staff was unclear. Shaw mentioned that he already had more than 500 business journalists who would love to write for Inc. When asked if he would keep the magazine in New York, he said he wasn't sure it was possible to be connected to the American entrepreneurial heartland if you were based in New York. (I happen to agree with him about that. So does Koten, but he argues that there's a bigger danger in being perceived as irrelevant by the New York publishing and advertising worlds.)
Shaw was obviously familiar with the magazine and inquired at one point about Norm Brodsky. After the meeting, Koten called Brodsky and suggested that he give Shaw a call. They eventually had what Brodsky later described as "the worst telephone conversation in my entire life," in which Shaw showed no interest in him or anything he had to say. (Shaw says he remembers it as "a pleasant chat.") All that led us to believe, perhaps mistakenly, that—as much as Shaw might value the Inc. brand—he considered at least some of us expendable. That's true, of course: We are all expendable. But we naturally prefer to work with people who think we aren't.
The distinction between the Inc. brand and Inc. magazine as we know it also became apparent when we finally figured out what the Alta group had in mind. It turned out that Alta was backing a trio of magazine industry veterans, none particularly well known. What interested them was the potential return on investment, not the opportunity to build an enduring brand—or so we thought. One member of the group, Ron Kops, insists that they saw Inc. as a "sleeping giant" and that they had long-term plans for it. If so, it wasn't apparent at the time. They set up a meeting with Koten and then canceled it. A friend of Byrne's met with one of them and reported back that they planned to "gut the magazine." When they met with Ed Sussman, they asked if there was a good young (and presumably inexpensive) editor on staff who could handle a big assignment. From their questions, Sussman deduced that they saw Inc. as an undervalued asset they could quickly streamline and flip for a nice profit.
That, of course, is a legitimate strategy, as well as a reasonable way to take advantage of the business opportunity presented by G+J's decision to unload Inc. at what was arguably the bottom of the market. It was no doubt inevitable that somebody would come up with such a plan. In effect, the Alta group seemed to be betting that the Inc. brand was strong enough to survive for a few years even if Inc. magazine became a pale reflection of the publication that had created the brand in the first place. We hadn't realized that the brand and the magazine could be separated in that manner, so it was an interesting lesson for us—one we hoped we'd never see played out in real life.
In any case, both Alta and Abry Partners were long shots. They were what are known as financial bidders, meaning they had to base their bids strictly on the financial return they expected to get from their investment. Financial bidders almost always operate at a disadvantage to so-called strategic bidders—in this case, The Economist Group and Advance's American City Business Journals—which usually have more resources to draw on and can justify paying a higher price based on how the acquisition will increase the value of their existing businesses.
That said, strategic bidders don't necessarily enjoy competing against financial bidders. With Alta, for example, there was the possibility that, by building massive cost-cutting into its plan, it could project enough future cash flow to justify a much higher bid than the strategic bidders would offer. As for Abry Partners, it had actually been the high bidder in the first round—a fact that led at least one of the other bidders to cry foul.
Part 1 | Part 2 | Part 3
