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Preparedness Pays: It's Never Too Soon to Plan an Exit Strategy

“Preparedness Pays: It’s Never Too Soon to Plan an Exit Strategy”

Investigating options early prevents mistakes, later heartbreak.

When Ed Avis first considered selling his successful trade magazine, Modern Reprographics, several factors influenced him — increased competition being the most significant. In 1993, when Avis started the magazine, no other publication covered the reprographics field or digital imaging.

Diminishing Sales

But by 1997, as the magazine posted sales of more than $1 million, there were three other magazines on the market. Two of them — Big Picture and Digital Graphics — were produced by larger companies, which had more publications, larger staff and the ability to gather more advertising by doing package deals with ad buyers. "The big equipment companies wanted to be in all four magazines," explains Avis, "which means the ad spreads were getting a little thin."

A Vulnerable Position

Also pressing on Avis and his company, Oak Park, Ill.-based Marion Street Press, was that his second magazine launch, Restaurante Mexicana, was losing money. Though profits from Modern Reprographics offset the loss from the second magazine, Avis realized his company was vulnerable.

A third key factor: Reprographics was not a field that Avis was passionate about. He started the magazine because he saw a business opportunity in the lack of coverage. "Had I personally been more committed to the world of those technologies, I would have shut down the second magazine and thrown all my energy into fighting it out, but that wasn’t the case," he explains.

Avis’ decision to sell was well timed: Media companies were looking for profitable magazines to buy. In fact, when Avis talked to a broker about selling, the first question asked was: "Are your sales going up, going down or are they flat?"

That’s a question every business owner — whenever they decide to sell their company — will face. They’ll also find prospective buyers seeking proof that the current business is as profitable as claimed, along with an outlook of future potential. Avis’ broker insisted upon creating a book that contained all the figures for his first four years in business, an analysis of the magazine’s competitors and where the industry was going. And Avis was forewarned that he would have to defend his document to buyers, who tended to be very skeptical. The compilation of the book was nearly a full-time job in itself, but one that ultimately made the exit process smoother.

The Best Strategy

As Avis sought buyers, he also had to figure out the best financial strategy for selling the magazine. His decision, one that he has reservations about in retrospect, was to sell the magazine as an asset of Marion Street Press, retaining the food magazine and stock ownership of the company.

Negotiations appeared to be simpler by selling the magazine solo. Cygnus Publishing, which eventually purchased Modern Reprographics, clearly had no interest in Restaurante Mexicana, as it did not fit in with its own stable of magazines.

Lessons in Hindsight

Selling the magazine as an asset, however, also resulted in Avis and his wife, the major shareholders, paying a heavy corporate and personal income tax.

Nonetheless, the couple successfully sold Modern Reprographics for $1.2 million to Cygnus Publishing. Negotiations were smoothed, Avis says, thanks to the book he prepared that detailed his company’s financials. Even so, Cygnus Publishing’s COO spent several hours with Avis asking some very tough questions before the deal was inked.

Writer: Chris Petrakos