Opinion by John McGovern, CEO & owner, Grimes, McGovern & Associates, LLC
Media and event businesses today are all about the acquisition of databases. We hold critical conversations with our sellers in the beginning of the sales process to determine the exact number of names they own and how many will be transferred to the buyers at closing. There are all kinds of contacts: sponsor, exhibitor, paid registration, free registration, newsletter subscribers, opt-ins etc.
It can be a bit like untangling computer cords or Christmas tree lights when sorting through exactly how many unduplicated names there are within the seller’s databases, including both current and former readers or contacts.
Buyers want to count and confirm all database numbers. I recall a deal we did a few years ago where the seller had shown a certain number of subscribers in their literature and media kits, but when the assets were transferred, the actual subscriber numbers were lower. That created a lot of problems in the deal.
In our case, the buyer was smart. In the next example I’m about to recount, the ending was very different.
This is the case of JP Morgan and Frank. In September 2021, JPMorgan Chase acquired student financial aid platform Frank for $175m, believing the company had over 4 million users. This wealth of data was central to JP Morgan’s motivation for buying the business.
It was later revealed that Frank had fewer than 300,000 users. Charlie Javice, founder of Frank, allegedly fabricated user data to inflate the company’s value. After the fraud was discovered, JP Morgan had buyers’ remorse, and Javice was arrested and charged in criminal court in April 2023. The trial is ongoing.
This story sheds light on what due diligence is really supposed to do – find out what’s real and what’s not.
In the case of Frank, the seller’s response to fraud accusations was that the difference in numbers occurred due to privacy laws. Frank said said that their user agreement didn’t include assignability to a new owner. That would have been a fairly catastrophic issue, if true.
However, finding out if it was an “assignability” issue rather than fraud was easy. JP Morgan simply needed to read the Frank user agreement – a job far less taxing than trying to confirm the identity of millions of contacts. (It turns out that millions of names were purchased and integrated into the Frank database ahead of the sale.)
The lesson here: if you’re planning to sell your show, event or business, make sure your database is clean.
John McGovern, CEO & owner, Grimes, McGovern & Associates
Grimes, McGovern & Associates is a leading lower middle-market Mergers & Acquisitions firm advising media, events and information services businesses globally.
Source: www.exhibitionworld.co.uk
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