Building business in Asia

Media companies around the world like to tell their managers that they are looking for entrepreneurial zeal and exciting new launches. Yet, time after time, they fall back on acquisitions and other forms of partnership to expand their businesses. This is particularly true in Asia where both cultural and regulatory issues conspire to make the new launch strategy both risky and expensive.

We will explore a little further here the reasons why companies find themselves going down the acquisition or partnership route and look at some examples of what has worked in Asia. We should add that straightforward acquisitions, while increasing in popularity, are still relatively uncommon in this region compared to North America and Europe.

Business Strategies Group’s tracking of B2B media acquisitions show only three significant publishing transactions in 2006 with a value of just over $20 million. Online has been much more active but the total is still only nine deals valued in the region of $150 million. Adding in business events and related services, the total for the year is just 20 acquisitions totalling, according to our estimates, around $260 million in value. The number of deals is, however, growing at over 30% a year with annual deal values increasing at a three year rolling average of 180% a year.

Why these deals look attractive

So, why partner and buy companies rather than launch new products? There are some basic issues which are common to all large, public companies wherever in the world they are operating: profits from an acquisition can drop straight to the bottom line while costs get lost in the balance sheet. This generates the growth that the public markets are looking for more quickly than any launch can. Media companies would also argue that acquisitions in this industry tend to be of more discreet business units and that there is, therefore, less risk of failure than in other industries. Savings are usually targeted for back office with growth expected from better international sales and there is less focus on over-arching 'synergy' strategies which so often fail to deliver in acquisitions in other industries.

More specific to Asia is the way in which markets are crowded. They may be fast growing – and that is why most international companies are pushed towards them - but that doesn't mean that all opportunities are automatically open to newcomers. There are dynamic and well-established local competitors in most markets. It may have once been true that China was virgin territory in many publishing categories. It would be difficult to think of any where that is still true. In most markets in Asia, most market niches are already covered by local competition. If acquisition is an option, it may be a much less risky one than a new launch.

Regulatory issues continue to plague many markets in Asia, which mean that market entry and the launch of new publications is not straightforward. We covered this topic in a previous article for InCirculation (May/June 2005), so won’t go over that again in detail. In the particularly complex markets like China, the joint ventures may not be able to include actual ownership of titles but can cover circulation and advertising sales activities. As an alternative to straightforward licensing, these ventures, while far from ideal, can give foreign companies greater management control of their businesses.

The most desirable rationale for mergers and acquisitions in these Asian markets is to combine local expertise with international brands. Deals such as Reed’s venture in India with Infomedia and the way in which Ziff Davis and Meredith are working with SEEC Media in China are good examples of this. Again, these ventures represent a big step forward from simple licensing and, although there is more involved in establishing and managing them, some media companies believe that there is too much at stake in the big, fast-growing markets of Asia to be completely hands-off licensees.

Some of the more interesting deals give companies access to specialist expertise which is not readily available on the open market or within their own companies. Incisive Media's acquisition of the Asia Venture Capital Journal earlier this year is a good example of this. It fits very well with Incisive’s portfolio but pulls into the company unique expertise built up over a decade in the Asian venture markets by Dan Schwartz’s team.

Speed is often a key attraction for these deals. Big international companies are looking for rapid access to the fastest-growing markets in the world. CMP Medica’s acquisition of Mediworld in India during 2006 fits this and a number of the other criteria outlined above.

The big deals in China

There are many examples of the types of deals we are talking about. Among the most interesting in China are those involving IDG. As we have noted before, IDG’s status in China is a special one as its presence there pre-dates the current publishing legal environment. It is, therefore, seen as a good platform for growth by a number of leading international publishers including both Hearst and Reed Business. Cosmopolitan and Esquire may fall outside the normal range of IDG’s business, but Hearst has bought into the publishing expertise and distribution capacity that the IDG and its local partner, Trends, have in China.

The deal with Reed Business is more recent and represents an expedient way for that company to generate much faster growth in China than it had been able to manage by itself. The deal includes brands such as Variety as well as more technical magazines such as the electronics title Packaging Digest, EDN China, Electronics Manufacturing China (EMC), and Control Engineering China. "We've been actively looking for a partner with deep experience in China to accelerate future revenue growth in that critical, booming market and IDG fits the bill perfectly," said Jim Casella, chief executive officer of Reed Business Information at the time the deal was announced.

Another interesting series of joint venture partnerships in China which span business, technical and consumer publishing are those with SEEC Media. This Hong Kong-listed company is the business arm of the publisher of the crusading business magazine Caijing which is basically owned by China’s stock exchange council. It has in the past year announced deals with Ziff Davis to produce a new Chinese edition of PC Magazine and CIO and with Meredith to produce the Chinese version of Betters Homes and Gardens. "Our agreement with SEEC Media serves as a building block in our plan to further leverage our magazine brand franchises outside the United States," said Meredith chairman and chief executive officer William T Kerr when the deal was announced.

Deals around the region

Another interesting joint venture which shows that there are often good opportunities between international companies as well as between purely local companies is CMP Media’s eMedia Asia joint venture with NASDAQ-listed Global Sources. This company, which includes a second level deal with Penton, publishes Chinese and other Asian editions of electronics magazines founded by Global Sources and rebranded using CMP’s flagship EE Times titles when the deal was concluded in 2001.

India is a market which is of great interest to many international media companies. As we have noted before, the regulatory environment is much friendlier there now to foreign publishers than it is in China. However, although you are allowed to structure your business much more along normal international lines, there are significant commercial and competitive pressures in the local market which mean that a stand-alone launch would be almost impossible.

So far, most Indian publishers have proven resistant to acquisitions, possibly believing that there is much more value to be obtained from riding the wave upwards for a few more years before considering cashing out. Most deals being done in India are simple licenses. One exception to this, Reed is working with the Infomedia group. It formed a joint venture company in which it controls 51% in December 2005 with the intention of using that company as a vehicle for launching up to 100 Reed Business titles in India. The BBC has also, of course, famously teamed up with the Times of India group in a 50:50 joint venture established to co-publish magazines in the mainstream film and women’s magazine segments.

Japan is a market which is still regarded by many foreign publishers as being ‘too hard’. McGraw-Hill’s long-ago dissolved joint venture with Nikkei is held up as an example of a structure that doesn’t really work there. It is true that a number of publishers, including both IDG and Reed have successfully, if expensively, built up stand-alone businesses in Japan. This needs deep pockets, although the rewards can be more substantial than in many other parts of Asia as advertising rates remain much higher in Japan.

But there are acquisition opportunities in Japan. CMP Asia’s 2001 acquisition of Kenko Media (KSS), a specialist healthcare publisher, is a good example of finding a good and, by Asian standards, reasonably substantial, highly specialised business. It brought new expertise into the company and, as a focused multi-media venture, has given CMP opportunities to expand in newsletters, conferences and exhibitions as well as traditional magazines. Deals like this can take a very long time to conclude in Japan, but they can be done.

Acquisitions and other types of partnerships in Asia can represent an excellent way for companies to build up their business. Negotiating them takes patience and a good feel for Asian business practices. Identifying good targets takes careful research, and ensuring that you are talking to the right one needs careful commercial due diligence. As elsewhere in the world, there is no one way to ‘do the deal’ in Asia and companies will find that a combination of approaches and partner types will work best in different markets for different products. Going it alone, though, is usually the hardest and riskiest approach.