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Lessons of ABRY Partners and F+W Publications: An Acquisition Case Study

ABRY Partners acquired F+W Publications in 2005 for $500 million. However, an investigation later found that F+W's financial results had been overstated by around $10 million through practices like backdating and reporting budgeted instead of actual results. Additionally, F+W had problems with its new inventory management system that cost $500,000 to address. Due to the misleading financial statements, ABRY may have overpaid for F+W by $100 million. The document discusses whether ABRY should file a lawsuit against the seller, Providence Equity Partners, or pursue settling the complaint.

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100% found this document useful (1 vote)
795 views17 pages

Lessons of ABRY Partners and F+W Publications: An Acquisition Case Study

ABRY Partners acquired F+W Publications in 2005 for $500 million. However, an investigation later found that F+W's financial results had been overstated by around $10 million through practices like backdating and reporting budgeted instead of actual results. Additionally, F+W had problems with its new inventory management system that cost $500,000 to address. Due to the misleading financial statements, ABRY may have overpaid for F+W by $100 million. The document discusses whether ABRY should file a lawsuit against the seller, Providence Equity Partners, or pursue settling the complaint.

Uploaded by

Miszakens
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Lessons of ABRY Partners and F+W

Publications
An Acquisition case study
Agenda
1. Introduction
2. Description of the companies and their M&A
3. The transaction
4. The investigation
5. Questions
6. Conclusions
1. Introduction

$500 million
2. F+W Publications (acquired
firm)
• publisher of periodicals and books
• book clubs, conferences, trade shows, websites
• acquired by Providence Equity Partners in
2002 for $130m
• revenues 2002 - $106m  
• 2004 - $250 m
• sold to ABRY in 2005 for $500m
2. ABRY Partners (buyer)
• Private Equity firm
• founded in 1989 by Andrew Banks & Royce
Yudkoff
• Focused on media & communications industry 
•  target investments  $20m - $100m
• by 2005 had $2,1 billion under management
from limited partners
• bought FW Publications for $500m in 2005
2. Providence Equity Partner
(seller)
• Private Equity firm
• Focused on media & communications industry 
• by 2005 had $9 billion under management from
limited partners
• target investments  $20m - $500m
• 2002-2004 - invested $150m in F+W Publications 
• bought FW Publications for $130m in 2002
• sold FW Publications to ABRY
3. The transaction
4. Results of the investigation

• Overstated financial results 

• Problems with the Inventory


Management System
4. Results of the investigation –
overstated financial results
EBITDA boosted about $ 10 million by:
• Backstarting 
• Reporting budgeted amounts instead of real results 
• Delay in recording costs and adjustments 
• Underestimation of  obsolete inventory and uncollectible
accounts  
• Channel stuffing
4. Results of the investigation –
problem with IMS
• What is VISTA?
• VISTA – new, integrated software solution
managing orders inventory, accounts
receivables, subscription and other
transaction data.
• There were problems with the VISTA system
but they were all hushed up by CEO Stephen
Kent.
4. Results of the investigation –
problem with IMS (2)
• Three main problems:
1) Failure of the system for several weeks.
2)Communication issues.
3)Closed trade agreement with Amazon.
Suming up:
• Approximately $500 000 spent on external
consultants.
• Significant internal resources used.
5. Questions
Would you advise Royce Yudkoff, Managing
Partner of ABRY, to file the lawsuit? Why or why not?
What is the upside/downside of filing the suit vs.
settling the complaint for ABRY? For Providence?
Was ABRY defrauded?
If you were a limited partner (investor) in ABRY,
how would you react to news of the lawsuit? What if
you were an investor in Providence?
5. Questions
1. Would you advise Royce Yudkoff, Managing
Partner of ABRY, to file the lawsuit? Why or why not?
We advise to file the lawsuit as many misleading actions
occurred. FW Publications lied intentionally about the financial
statements what resulted in lower value of the company. Apart
from manipulating F&W’s financial statements, they also
 overstated its earnings and artificially inflated EBITDA and as
a result of these misrepresentations, ABRY overpaid for F&W
by approximately $100 million.
In the agreement there was an article that limited the Providence
responsibility to $20m for any post-closing claims and damages,
but in this case it is too little sum of money, that’s why we
advise to sue the Providence.
5. Questions
2. What is the upside/downside of filing the suit vs. settling the complaint for
ABRY? For Providence?
ABRY Providence
 
Upside Downside Upside Downside

filing the •High • High costs of •A chance to •A risk of paying


suit compensation layers to cover prove the compensation
when winning when losing the innocence •Drop of share prices
the case, case •Lose of clear brand identity
•End of deal •Unreliabale
partner

settling the •More lucrative •Impossible •A chance to •Impossible


complaint deal smooth over
•End of deal ABRY’s anger
and make a
counter offer
5. Questions
3. Was ABRY defrauded?
We decided, that it was a fraud in this case, because
in accordance with the definition of fraud there was
an intentional mislead that was motivated by the
desire to deceive another to his harm.
What is more Providence failed to disclose all
information about the financial situation of FW
Publications and they had manipulated financial
statements what is also a defence 
5. Questions
4. If you were a limited partner (investor) in ABRY, how would
you react to news of the lawsuit? What if you were an investor
in Providence?

Under circumstances of lawsuit, as an investor of Providence or


ABRY, we would like to withdraw financial sources. The risk
of investment would rapidly increase. The probability of
incurring additional cost is very high. As a result we would take
under consideration to sell shares of those companies. 
6. Conclusions
The Share Purchase Agreement is essential therefore
both buyers and sellers should:
• carefully neogtiate the idemnification provisions to
ensure appropriate risk allocation,
• carefully negotiate the ‘no reliance’ provision
describing the information the buyer relies on so
even if the seller acts recklessly or with gross
negligence, one will not be able to insulate itself
from potential liability by contract against its own
lies, intentional misrepresentations or fraud.

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