After careful consideration,
you have decided to sell your publishing company and turn your equity into
cash, diversifying your personal wealth. Two basic types of transactions are
available, each with numerous ways of meeting buyers’ and sellers’ various
needs.

An asset purchase is the most
common form of business sales transaction involving small to midsized
publishing companies. The buyer acquires only selected assets of the seller’s
company, primarily intellectual property and everything related to production,
marketing, sales, and the inventory. Asset-purchase sales transactions provide
tax benefits and liability protection to buyers and generally result in a
higher price for sellers than stock sale transactions.

For a stock sale, the seller’s
company must be a corporation. The buyer acquires the whole company and its
stock and assumes all assets and liabilities of the business along with
ownership. A stock sale usually provides tax benefits and liability protection
to the seller, but the purchase price is generally at least 25 percent lower
than it would be in an asset sale, because the buyer does not receive the tax
benefits of expensing the assets over time.

If a business is prepared for a
sales transaction, as discussed in earlier installments of this series, the
sales process generally takes 6 to 18 months from start to finish. If the
business is not ready for sale, it will take much longer—possibly 18 to
36 months—to prepare, and then 6 to 18 months for completion.

Teamwork Tips

To support the sale of the
business, a seller needs both an internal and an external team.

The internal team should include
only the people in the company who absolutely need to know that it is for sale,
because they must provide information and support sale-transaction efforts.
This team generally includes the chief accountant, key sales and marketing
personnel, the editor/publisher, and the owners. Arrangements should be made to
compensate the team for their extra efforts and for staying to complete the
transaction.

The external team should comprise
people who will support the sale of the business with technical expertise, as
needed. It can include legal counsel, an estate planner, a CPA and tax
accountant, and a business broker.

We strongly advise using a
publishing attorney with transaction experience, because intellectual property
transactions have their own special characteristics and demands. Using a
business broker is often wise. Unlike the owner, who may never have done a
business-sale transaction before, an experienced business broker does them
constantly. Brokers guide the sales process forward, are objective about the
company’s market value, and help both buyer and seller move through technical
and emotional issues.

If you decide to work with a
broker, you can expect the broker to provide you with knowledge of the
marketplace; visit your offices to get a thorough understanding of the company
and the management; review history and opportunities; prepare an offering
memorandum; research and contact potential buyers; handle nondisclosure
agreements, information requests, product reviews, and financial information;
help with a letter of intent, due diligence, and legal documentation; and
negotiate the sale and its value while you continue to run and grow your
company in the interests of getting the best price for it.

Additional Options

Although selling a business to an
outside buyer is the most common method of ownership transition, other exit
strategies are available to publishers. They include:

Wind
down the business and close the doors. Small publishers operating as sole proprietorships often choose this
option, which involves letting titles sell down without spending any more money
to market them, and taking a small profit until sales end. Obviously, it
provides minimal terminal value to the owner.

Transition
the business to the next generation.
Many publishing houses have been passed from generation to generation. This can
be a successful strategy when the next generation is interested in and
knowledgeable about both the publishing business and running a business in
general. However, it can place a large psychological burden on those who bequeath
their companies and assume that operations will not change, and on those who
inherit the companies and feel judged according to expectations they may not
share.

Use
an employee stock-ownership plan (ESOP). This requires selling stock in your company to your employees over a
period of time, usually several years. The business’s cash flow is commonly
used to pay for the stock. Generally, it also involves getting an independent
valuation of the business on an annual basis until the stock ownership transfer
is complete. If the business increases in value as the employees are purchasing
it, the amount the seller will receive for stock will also increase, causing
problems if the business cannot afford the additional cash drain. If the value
of the business decreases, the value of its stock is reduced for both seller
and employees, and the seller faces the risk that the business may fail, with
payments for stock limited to those already received.

Whichever exit strategy a
publisher chooses, and however long and complex the exit process is, what
happens next can be just as exciting and rewarding as owning a publishing
company can be. In some cases, the sale of a company is the key event that
provides the owner with adequate resources for enjoying retirement. In other
cases it provides capital for pursuing any number of interests, including a new
career.

A co-founder and publisher
of two successful trade book publishers, Howard W. Fisher now operates The
Fisher Company and helps growing publishers with business development and
mergers and acquisitions. He is a former PMA president and a frequent PMA
University presenter.

Daniel R. Siburg, CPA, CVA,
a former company president and CFO, provides mergers and acquisitions services
to clients and presents media industry operating statistics and commentary at
many publishing meetings.

To contact the authors,
email howard.fisher@thefishercompany.com or dan.siburg@thefishercompany.com. To
read the earlier articles in this series, click on “<span
style=’font-size:11.0pt’>Independent Articles” at the www.pma-online.org
home page (on the menu at the left), or see your own copies of the February,
March, April, and May issues.