How To Survive Post-Merger Credit Problems

The media industry is no stranger to the changes that can occur as a result of M&A activity. And, it’s not the only industry that is undergoing transformation. There has also been significant consolidation among advertisers and agencies.

The transformations resulting from their M&A activity require media companies to adapt credit and collections policies to mitigate credit risks and strengthen our competitiveness.

C. Robin Szabo, president of Szabo Associates, media collection professionals, points out that we often regard the ongoing trend in agency consolidation as being either a glass that’s half empty or half full.

Looking at it from the half-full perspective, consolidation generally results in stronger agencies, reducing the risk of delinquent or non-payment for a media buy.

From the half-empty viewpoint, companies need to understand that it’s sometimes difficult to collect payments from businesses that have been acquired by larger entities.

In an article appearing in the current issue of TFM – The Financial Manager magazine, Szabo provides a detailed examination of what can happen when agencies transform as a result of mergers and acquisitions. He also addresses cases in which they have been forced to cease operations after failing to compete with the ad management capabilities offered by their larger counterparts. The March-April issue of TFM will continue to be available on our website for several more weeks. 

Entitled, “Riddles Wrapped in Mysteries,” Szabo’s article draws from Winston Churchill’s famous “enigma” quote about Russia to describe the challenges that arise when media companies try to decipher how these agency transformations will affect their businesses. There are ways to solve the puzzle.

It can be tricky, and I can only give you the highlights here. I encourage you to grab a hard copy of the magazine from a member in your company, or check out the electronic copy online.  

• Collections can be impacted when the M&A deal involving an agency that currently owes you money. Some transactions, such as an asset purchase, will mean the debts remain with the entity that sold its assets. This may prevent a media company from asserting a claim against the buyer and leave the company with recourse only against the seller. Szabo goes on to discuss what to look for when an agency shuts down and then morphs into a new entity; this will require reevaluating its credit worthiness.
• Ownership structure can affect payment liability. As Szabo points out, “Change in the structure of a company may have ramifications that go well beyond its lack of credit history.” Whether an agency shuts down and then re-launches as a new business, or was purchased and merged with a larger one, it will be important to determine who is liable for the debts incurred by the new business. Liability for ad payments can vary depending on whether the new organization is a partnership, limited partnership, or limited liability company (LLC).
• Identifying and prioritizing risks to your credit and collection program.  “It has long been a good idea for companies to review their credit policies annually. In this era of mergers, acquisitions and changing agencies and services, it is essential,” Szabo advises. His article reviews the “11 principles of risk management” as defined by The International Standards Organization (ISO) and how to monitor, control and mitigate those risks as part of developing an effective credit policy.

• Adapting credit policies and practices to respond to the changing media environment. Consolidation among agencies has been affecting their ability to influence the terms and conditions of their media purchases. Another attribute of the new landscape is the ability for larger agencies to invest in analytical tools for harnessing big data as well as in the automated processes that can facilitate programmatic buying. Szabo’s recommendations for how media companies can provide the higher level of customer service that respond to these emerging needs include the innovations in media credit that have been developed by BCCA, the media industry’s credit association.

As Szabo observes in his TFM piece, today’s ad sales departments are looking for quick credit approval for media buys. Of course, the best predictor of how an advertiser will pay you is how that advertiser has paid other media companies.

However the same trends that are speeding up industry consolidation and the demand for quick credit responses — faster information flow — also mean that credit decisions can be efficiently handled away from the market. 

These two conflicting trends — loss of local knowledge and the push for faster credit information — are the reason BCCA is unveiling a new credit product next month. It’s an electronic credit report combining credit scoring based either D+B or Experian data along with data on media aging, which is information that almost never gets reported to those credit bureaus. We will even be offering an industry-specific credit decisioning tool to allow groups to better automate their more routine credit decisions.

This product is so new that we don’t even have a name for it. It builds on BCCA’s other media specific credit products including EMCAPP (the Electronic Media Credit Application) and the Custom Credit Report, which is compiled by BCCA credit investigators after contacting references and conducting other research to provide an in depth look at each applicant. And our newest product addresses one of the greatest challenges being faced by credit departments in the emerging world of near-real time media buying – the need for speed.

Do you have a suggestion to name this new product? We are taking a page out of the successful media promotions handbook and running a contest to find the right name.

With the support of the MFM/BCCA board, we’ve begun signing early investors who will receive an additional 10%-25% discount on the new reports for a period of years depending upon their level of investment. The company submitting the winning name before Friday, May 7, will be considered a Supporter and receive an additional 10% discount on these reports for three years. (See www.bccacredit.com for details.)

Not only will we be showing the new product at Media Finance Focus 2015 the 55^th annual conference for MFM and its BCCA subsidiary, we will also be announcing the new product name and the winner of our contest. Themed “Blazing a New Frontier,” the conference is to be held at The Arizona Grand Hotel & Spa in Phoenix, , May 18-20, and will feature a full track of sessions for the industry’s credit and collections professionals.

All told, Media Finance Focus 2015 will feature presentations from more than 175 industry experts, who will also provide the latest information on such areas as M&A, HR, and the regulatory and technological developments affecting the media industry.

And thanks to sponsors like Szabo Associates, which will be hosting our opening night event at Rawhide Western Town and Steakhouse, we provide a number of formal and informal networking activities that are designed to foster idea-sharing and developing friendships with industry colleagues who are addressing the same challenges in their markets and companies.

You can find more information about Media Finance Focus 2015 on the conference website: www.mediafinancefocus.org.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.