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GMG and the capitalists 

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Much talk about the Guardian Media Group over the last few days with talk of new investment funds, redundancies and Roy Greenslade in his Evening Standard column about what happens when the liberal left gets in bed with venture capitalists.
GMG is, of course, heavily in bed (I'm not sure you can be heavily in bed, but you get the idea) with Apax headed by Stephen Grabiner. It bought Emap's B2B arm for £1.1bn in December with Apax, with which it already sold half of Trader Media Group to (Autotrader).

"Apax is", Greenslade writes, "the kind of private-equity company that has had many a Guardian journalist breaking out in spots".

That might be and while it is early days, GMG has clearly taken its time and been selective (you'd have to be with Polly Toynbee as top private equity critic at the Guardian) and concluded that Grabiner (formerly of The Daily Telegraph, the Daily Express and ONdigital,) is someone it can do business with. Maybe helped by that background in newspapers.

Carolyn McCall, GMG chief executive, said last week that Emap is seen as a long-term project: "Apax could be in for six years or more"; and Grabiner in the Daily Telegraph seems to agree (give or take a year): "A typical private equity timeframe in the new world is four to five years. I would assume five years for this one. Emap is all about building the business".

But it is not without risk and the risk mostly being saddled with debt. The Trader Media deal involved over £800m of debt and Emap has £700m.

But despite this debt and the investment tied up in the two ventures, it is says McCall, the best way forward.

It's not the only way though. At the weekend, McCall revealed details of a new investment fund of around £100m, which would be invested outside the media industry.

All of this is part of GMG's strategy to ensure the future of The Guardian and The Observer. Pretty much like The New York Times (which has the unfortunate burden of being publicly quoted) everything in GMG is done for the newspapers and their websites and that all assets are in play and could be sold at some later date including its radio stations Smooth ("For London, for Smooth [advertising to win listeners], it's like pouring money down the drain," McCall says).

With the Emap deal being bedded down, the new investment trust being established, McCall appears to be far from finished. Having taken Emap, she told the Sunday Times the parts of the business that she is most interested in are the international bits that are not reliant on advertising, like the fashion-industry website WGSN, the Cannes Lions advertising festival and Middle Eastern Economic Digest Projects.

"Emap gets 60% of its revenues from data or events. The most important thing for us is to expand in these high-growth areas," she said.

That might mean expansion in the US and Asia, something that Grabiner has talked about as well, where the markets are growing faster.

Growing the business and getting those returns is key to the GMG strategy, particularly because the next two years are going to be a testing time of change for the papers. The digital push continues as does the moves towards integration and new offices. All of this comes against a backdrop of falling ad revenues, which will hit newspapers hard. The Guardian might not be losing a lot, and less than the Independent, but it is losing cash.

Earlier this week, 19 journalists took voluntary redundancy with more expected (but no overall drop in editorial headcount) as it creates its integrated news room and moves to greater cooperation between the Guardian and Observer.

McCall has conceded that The Guardian will not make a profit for at least the next two years because of the ad slowdown.
Published Mar 26 2008, 11:53 AM by Gordon Macmillan
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