IPC set to grow after sale

THE sale of Reed Elsevier's IPC Magazines to Cinven and IPC's managers for pounds 860m will give Britain's biggest consumer magazine publisher the opportunity to launch more magazines, make bigger acquisitions and grow its existing business, according to Mike Matthew, IPC's chief executive.

"The essential difference is that a greater proportion of resources can go into developing the company," said Mr Matthew. "We've been averaging four new magazines for the past five years, and I think we should be ramping that up ... in average terms I think we should be looking at seven to eight titles a year ... with Cinven, we will have the funds and the opportunity to do that."

The 70-magazine-strong publishing unit of Reed Elsevier - which put IPC on the block after deciding to focus on business information - commanded more than any other UK company sold to its managers in 1997.

The sale of IPC, which publishes consumer magazines, including the number one UK seller What's on TV, as well as Country Life, Marie Claire and Loaded, opened a new year in which bigger-than-ever management buy-outs (MBO) are likely to dominate the marketplace, said Mike Stevens at KPMG Corporate Finance.

Like IPC, many MBO candidates in 1998 will be corporate units that no longer fit with their parent company's strategy. Mr Matthew said the new management structure meant that IPC could focus on investing in and "refreshing" some existing titles. It would also step up acquisitions. In the short term, IPC was likely to acquire magazines to fill out areas in which it was already strong. For instance, he said, shortly before the Cinven purchase, IPC bought Golf magazine "to sit aside" its own Golf Monthly. "That's the kind of thing we'll be doing," he said.

Also, "there will be the opportunity to look at acquisitions of scale. With Reed having stated that they're coming out of the consumer market, I could hardly have been permitted to look at any consumer acquisition of any scale." But he said: "Nothing sizeable is yet in the works."

Cinven has already factored in the cost of launching more titles, according to Dick Munton, investment director at the venture capital firm. He added that did not rule out a "larger acquisition, if one became available".

Munton said Cinven liked IPC because it was "an unusually high-quality property with a substantial portfolio of leading titles" He said its main attratcions were "strong and predictable cash flows and a strong and experienced management team". No management changes were planned, he added.

Analysts have questioned whether IPC, which is the UK's largest consumer magazine publisher by circulation, with 50 per cent of the market for women's and TV listings magazines, can weather a predicted industry-wide drop in advertising revenue this year and maintain its top-of-the-market valuation. "You've got to count on advertising revenues continuing to rise," said Michael Hilton, analyst at Dresdner Kleinwort Benson. "I think they'll turn down in 1998."

Still, others point out that with 33 per cent of revenue derived from ads - 63 per cent comes from circulation and subscription sales - IPC is less vulnerable than most competitors to a downturn in the ad market.

Mr Matthew, who started out in IPC's advertising copy department 31 years ago, agreed. "I don't see it as a problem."

Other observers point to cost control as a key issue for the future. "Provided management keeps costs down, the price is about right," said Louise Barton, analyst at Henderson Crothswaite.

Keeping up with technology

is a key priority for the company but not for the cost efficiencies. "We are living in the future probably more than most businesses," said Mr Matthew. "But do we do it to cut costs? No, we do it for efficiency."

IPC has the biggest single-site local area network of any business in the UK, he said, with 57 servers and 2,000 personal computers in its 29- storey King's Reach Tower headquarters. There were no plans to reduce investment in IT.

He said the change of ownership would probably change the way he and his managers run the business. "There's no question that the process of a financial buy-out and the onus it puts on senior management "intensely focuses the mind".

"We have interest payments to make, so we'll be much more focused on cash, and if we're going to have a successful flotation, then we need to continue the sort of growth in operating profit and cash flow that we've had for the past six years."

Four to five years from now is a "realistic horizon" for the sale of IPC equity, he said.

KPMG's Mr Stevens said the shift is typical of managers who take part in MBOs. "It's a bit of human nature: if you own a slice of the company, you'll probably work harder."

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