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Forbes sale shows Asian media’s ‘great growth potential’

, July 22, 2014, 0 Comments

After 97 years of family ownership, Forbes Media has sold a controlling stake in the firm to Hong Kong-based investors, a move that symbolizes the rise of Chinese ownership of media firms, analyst Ken Doctor tells DW.

The company is set to remain privately held and based in the United States, but a majority stake is being sold to the Hong Kong-based Integrated Whale Media Investments.

Steve Forbes, grandson of the company’s founder, will keep his job as chairman and editor-in-chief under the plan, which brings new capital into the publishing group. The Forbes family will retain “a significant ownership stake” in the firm launched in 1917.

The business magazine, known for its rankings of wealthy Americans and global business leaders, has some 75 million readers worldwide. Ken Doctor, a news industry analyst, says in a DW interview that Forbes will, inevitably, see many pressures on the kinds of in-country editorial operations.

DW: How much of Forbes is now owned by Integrated Whale Media Investments?

Ken Doctor: We believe that Integrated Whale gets about 80 percent of the company in return for an investment of about 300 million USD. The remaining minority ownership remains with the Forbes family.

Given the new valuation of about 475 million USD, we see that the company has depreciated in value since 2006. At that time, the company was valued at about 573 million USD, when Elevation Partners invested 260 million USD to gain 45 percent of the company.

Why did the Forbes family decide to sell a majority stake in the company?

The Forbes family was under the gun. Under terms of the investment made by Elevation Partners, the company had a trigger point in less than two years, in 2016.

That deal included two very important provisions: First, it gave Elevation a put option that could have forced the Forbes family to repay the initial Elevation investment. Second, it gave Elevation preferred status in ownership going forward. That meant that it was first in line to receive proceeds from any sale of the company’s shares.

Inevitably, that meant that the Forbes family had to figure out a way to cash out Elevation without completely losing its stake in the company. That led to the company essentially reducing its approximate 55 percent stake in Forbes to about 20 percent.

That’s a 64 percent reduction in its stake. We believe that Elevation received more than its initial 260 million USD investment back, while the Forbes family got somewhere in low double digit millions as part of the transaction.

So the net for the Forbes family: An almost two-thirds reduction in stake and loss of control. Steve Forbes, for now, remains chairman and editor-in-chief, and CEO Mike Perlis stays on as its chief executive.

How profitable is Forbes?

According to its own pitch book, Forbes’ earnings before interest, taxes, depreciation and amortization (EBITDA) is about 15 to 17 million USD a year. It is running at an about 10 percent margin.

That’s not a bad number, but its business model, which clearly delineated in an offer book that I obtained in January, shows that Forbes’ highly self-promoted business model isn’t producing hockey stick results.

Though it liked to tout itself as a digital pioneer with booming digital growth, its revenue growth numbers for the last three known years – up 4.8 percent, 1.4 percent, and 9.4 percent – have been unremarkable.

People familiar with the deal say the purchase placed the company value at 475 million USD. This, however, is a much higher price tag than the 175 million USD that Time Inc. was willing to pay to buy Forbes last fall. How did Forbes’ reps manage to do this?

Numerous companies including Fosun, Spice and Germany’s Axel Springer actively looked at the company and passed, as did US publishers. For US publishers, including Time, the under- 200 million USD valuation is much more realistic. At that price point, its multiple would have been a little more than 10 times its annual profits.

Magazine companies usually sell for five to six times their profits. Forbes can rightly claim more of a digital business edge as its digital ad revenue surpasses its fast declining print ad revenue, and as such they can argue for higher sale value than a five to six times their profits multiple.

To get it to an astounding 25 times their profits, Forbes finally found investors willing to buy its story rather than its performance. That story: great ability to reproduce the Forbes business model especially in fast-growing Asia, and worldwide.

Although its great global growth, quadrupling its local licensing editions to 36 from 9 in 2008, and increasing its international websites to 24, hasn’t yet produced outsized profits, the story remains that Forbes can be the platform for business news success as millions of Asians and others move into business management.

Why were the Chinese so keen on buying Forbes?

There are two main reasons for this. Number one: Great growth potential. Asia is the continent that all business news companies are targeting, from News Corporation to Bloomberg. Number two: The brand. While flagging as a serious business news brand in the United States, the brand overseas is well-known. It is also a symbol of American business success: the Forbes List, for instance, is well known.

Forbes has been on the market for about 100 years and is one of the most popular US business magazines in the world. What does the fact that it was now sold to Chinese investors say about China’s rise?

In many sectors, we’re moving beyond Chinese licensing of brands and technologies to Chinese ownership. It is a natural evolution, and one we’re going to see more of.

How interested have the Chinese been in buying US media companies?

We’ve seen interest expressed in the New York Times Company, but few others. Much of the print-based media is really cultural, drawing upon intuitive knowledge of national readers – and actively working on national advertising relationships.

Those factors tend to keep most news media nationally held. In broadcast media, we will inevitably see more trans-national ownership, and that’s an area in which I would expect to see Chinese investment.

What impact could the change in ownership have on staff or editorial decisions?

Inevitably, we will see many pressures on the kinds of in-country editorial operations. China, itself, is only one tangled example of how difficult it is for Western media companies to operate on the basis on their traditional reporting standards.

Overt censorship is one thing; the pressure to not write about certain topics or to present a pleasant gloss over real issues will be strong in many of the nations in which Forbes will operate. Out of the glare of Western media criticism, much of this influence may be largely undetectable.

Ken Doctor is a news industry analyst and the author of Newsonomics: Twelve New Trends That Will Shape the News You Get (St. Martin’s Press). He also runs the book’s companion website, He is an analyst for the research firm Outsell and a regular consultant and speaker and the Nieman Journalism Lab at Harvard University.You can follow him on Twitter @kdoctor.