Published By Magazine Publishers of America
December 2004

In December Mark M. Edmiston, Managing Director, AdMedia Partners, Inc. offered a valuation seminar to more than forty senior magazine publishing executives in Mexico City. His presentation entitled "Maximizing Value-A Strategic Discussion" was intended to present standard US valuation ratios to a market that seems ripe for sale and consolidation.

Edmiston reminded his audience that creating value is a process--sometimes a long one, not an event. Financials, to be sure, are the beginning of the discussion but not the end of it. He reminded attendees that are their assets are not on the balance sheet. He also suggested that globalization is both a threat and opportunity for those interested in increasing the earning value of their assets.

Edmiston's First Rule of value creation is to run your business as if you were going to buy it. In other words every significant corporate decision should have the objective of building value.

He reminded the audience that fundamental value is the sum of future earnings discounted to present value by the cost of capital and risk, a notion that is not universally popular or accepted in Mexico for a variety of reasons. Many magazines companies are quite small and reinvestment of profit in the business is not always easy. Moreover, the Mexican tax system almost encourages entrepreneurs to place their profits elsewhere. Many businesses are family-owned and this has some effect on distribution of earnings.

Edmiston cited three very real risks that impact value: executive, economic, and political. One of the first questions a potential buyer will ask is: has management shown it is capable of achieving the projected results. Future earnings projections must make sense with past performance. Outside verification is essential. This is an issue in Mexico because circulation audits are not yet standard opening procedure for many publishers.

The speaker underscored the fact that growing markets inflate value but only if you are keeping up with the market. Edmiston suggested that political risks have lessened significantly in the last five years. The country enjoyed peaceful political change and the end to armed insurgency, relatively mild inflation, investment grade debt, and an increase in foreign investment. He suggested that Mexico is the only significant Latin American economy viable for investment by foreign nationals.

Click here for the PowerPoint presentation entitled "Maximizing Value-A Strategic Discussion."