Editor’s Note: Today’s post is by Kevin Marvel. Kevin has served as the Executive Officer of the American Astronomical Society since 2006. In this role, he is responsible for all aspects of Society operations, including the publishing of the primary research journals in Astronomy, the Astrophysical Journal and Astronomical Journal and providing support for and guidance to the Board of Trustees of the Society. Kevin is the author of numerous articles both scholarly and general interest as well as two books. He regularly speaks to the public about astronomy and will happily teach anyone to recognize the bright constellations, while incessantly sharing with anyone who will listen the latest discoveries in astronomy.
It all started with a picnic in Cambridge. Over hamburgers and potato salad, our Society’s Press Officer was candidly informed that the magazine he used to serve as Editor in Chief, Sky & Telescope, was facing difficulties. Difficulties not with itself or the community it served, but with the parent company, which owned many dozens of similar enthusiast magazines. Among possible solutions floated was an outright purchase of the venerable astronomy periodical by the American Astronomical Society, a truly outside-the-box idea. The next day he called me and that got the process started, but where we ended up was far from what we envisioned during that initial call.
As the CEO of the American Astronomical Society (AAS), a membership organization, I’m faced with all kinds of challenges, most of which are near-term and always pull me away from long-term strategic matters of significance. Setting aside the time and space to think big is something all non-profit CEOs need to do, while actively working toward the inclusion in all policy matters of their elected leaders, who are the guiding force for any scholarly society. One big issue our organization had been grappling with for years was how to engage with the large population of amateur astronomers, who represent the most interested members of the public in the scientific advancement of astronomical knowledge. With limited resources and a substantial range of events, businesses, and amateur organizations already serving this community, it was challenging to find a foothold that would allow us to fulfill our mission of enhancing and sharing humanity’s scientific understanding of the universe with the amateur community. The limited resources were a paramount concern.
The American Astronomical Society has roughly 7,500 members of all types, with just over 4,500 core members, representing active researchers in our discipline along with about 1,500 students and a range of affiliate and emeritus members. Even though we are the largest professional society in the astronomical sciences, representing roughly 25% of the active researchers worldwide, our size is tiny compared to the amateur community, which is at least ten times if not a hundred times larger in number. Aside from leveraging Internet-based technologies to communicate more effectively with this pool of enthusiasts, we have never quite found the ‘secret sauce’ for engaging with this large community, which has been an ongoing frustration.
We had recently taken a positive step, by establishing a new amateur membership category and engaging with the early adopters to figure out what we could provide them as a community that they would value. Right about that time the picnic happened. An opportunity was knocking — that was clear to me and our Press Officer, but how could we take advantage of it? We were open to the possibility, but the cold, hard reality of finances would shut down our vision…at least for the present.
Any reasonable business, delivering a positive bottom-line year-on-year, as Sky & Telescope (S&T) was, would sell for a multiplier of either the gross annual revenue or the net revenue, or the EBITDA (Earnings Before Interest, Taxes, Depreciations, and Amortization, a near proxy for cash flow), or something. When I started working out the possible sales price of the operation based on some assumptions and some old financial reports, the potential price quickly grew to an amount larger than our financial reserves. I couldn’t see a way to deliver a proposal to my Board that would pass muster. S&T was out of our reach. I let my Press Officer know we were out of the running and we put our aspirations on hold.
A few months later, we found out that the parent company for S&T had declared bankruptcy and all of their magazines would be sold at auction. An unexpected opportunity had surfaced! I had to act quickly given the timescale of the auction (just a few months from initial bankruptcy filing) to bring our volunteer leaders on board. This was a risky, but obviously mission-enhancing opportunity, to acquire a for-profit business focused on serving the advanced amateur astronomy community and very much in line with our organization’s mission.
As nothing would be possible without the strong support of our governing Board, I first focused on building a strong consensus with our elected leadership. After receiving the initial umbrella documentation describing all the businesses for sale at auction, I developed a presentation for the Board at their spring face-to-face meeting. I entitled it “On Our Mission and Opportunity”. I placed many recent accomplishments in the context of our overarching mission. I enumerated gaps in our mission that we would like to fill if we could, such as figuring out a way to communicate new research results with the broader public, engaging with amateurs, reaching out to students with real science results, and finding a way to draw more people to our conferences. I made the case that acquiring a vehicle that helped us accomplish these objectives would be easier than trying to build something to accomplish any single one of them. Then I made the pitch: we should try and acquire Sky & Telescope magazine and its associated businesses at the bankruptcy auction.
Even though I had not yet walked them through the financial feasibility of doing so, I was met with many positive nods and even outright smiles (and one ‘All right!’) among our elected leaders. They were ready to have a go. Even when I told them it would likely require more than a million dollars, carried some risk and that we had to act more quickly and decisively than we ever had as an organization. They were on board and we were off on a multi-month adventure.
Acquiring a for-profit business and converting it to a non-profit operation seemed unique when we began our journey, but I found other organizations that had done something similar, though none had done so through a bankruptcy acquisition. Conversations with those involved quickly showed me I needed expert help, both from a legal and a business standpoint. We have had a very long and productive relationship with our legal counsel, and they were more than happy to help us with this effort, while I hunted around for the right consultant to provide the business and acquisition support we needed. Ultimately we decided to work with Clarke & Esposito. (Full disclosure: Joe Esposito and Michael Clarke are both regular contributors to The Scholarly Kitchen)
The bankruptcy process required the initial submission of a non-binding bid followed by a month of due diligence and a final binding bid. Six weeks total were allowed from start to finish. The initial bids could be used to exclude low-ball bidders from the process, so we needed to succeed at each stage of the process. The auction, if needed, would take place after the bid deadline.
Consultations on strategy, process, and due diligence began in earnest as we prepared our initial bid. We were given access to a substantial ‘data room’ filled with directories of hundreds of files providing detailed information on the businesses up for auction. We began combing through them, identified missing key information and requested additional details. Some we received, some we did not. Some of the information proved correct, some proved lacking in detail or ended up being incorrect. (A discussion of proper due diligence for an acquisition deserves its own report. Information on this topic can be found online, through consultants, and in business literature about how to proceed.)
We submitted our initial bid, which was accepted for the first round. We based our bid amount on our assessment of the distressed cost of the business tempered by our desire to be a lead competitor, while not utilizing a substantial fraction of our reserves. Once we were accepted as bidders, we began a deep dive into the financial and other data made available in an effort to truly determine how viable the business was and, therefore, what our final binding bid would be. Our main focus was the development of a detailed Asset Purchase Agreement, outlining just what we were buying. This along with other requirements formed the basis of our final binding bid.
During the process of generating our final bid package, we had some surprises. First, although initial documents indicated that the popular book publishing business connected to the magazine would transfer in the auction, we were informed that the most popular books would be bundled up with other books and sold in a separate sale. I vigorously protested, making the point that the books business was an integral part of the outreach of the magazine to its community. Engaged amateurs needed not only a monthly update on the sky above, new research results and the latest and greatest in equipment, but the supportive knowledge of the detailed atlases produced by the editors of the magazine and published in various formats. Although finding the Andromeda galaxy with binoculars was easy enough for amateurs, finding NGC 7662, the ‘little blue snowball’, a gorgeous planetary nebula, required an atlas focused on the engaged night sky observer even for me, a professional astronomer. They were trying to sell an iPod without iTunes…it simply wouldn’t work for us. Stating our bid would be far lower if the books did not come with the magazine resulted in a reversal of the seller’s decision.
Second, it became clear that we were likely the only bidder interested in S&T alone, but other bidders might be interested in a suite of magazines including S&T. Given our limited resources, it would be harder for us to bid against somebody bidding on multiple magazines. This impacted our bidding strategy and our final bid amount. Had the auction not allowed for bids for multiple lines of the business, we would have likely bid lower than we did.
Third, although we worked to the established deadlines, other bidders had difficulty meeting them and the final bid deadline was pushed back an additional two weeks, which allowed us more time for research and due diligence, but also allowed us to question our bid strategy. Ultimately, this additional time led to us submitting a lower bid than we would have otherwise, which was an advantage in the end.
Finally, we found out that significant financial obligations to past contributors to the magazine and to vendors that enabled the publication of the magazine had not been made for some length of time before the bankruptcy filing. Since many of the past contributors were obviously important contributors for the future and important to the ongoing success of the magazine, we would have to make some of them whole in some way, shape or form, while the fresh re-set of the bankruptcy proceedings would technically free the business from all past obligations. If we won, we’d have some tough decisions to make.
Our CFO and I traveled to the bankruptcy court in Wilmington, DE with our advisors, fully expecting to participate in the auction itself. Phone negotiations the night before allowed us to reach a deal without the risk of losing the business at auction to a larger bidder, but well below our maximum purchase price. Although we were disappointed at some level in not being able to participate in the auction process, we were thrilled to walk away as the owners of a cash-positive business that aligned so centrally with our mission. We now had a lot of work in front of us.
The next month was a rush of activity. We settled the Transition Services Agreement, outlining what services and at what cost would be provided by the previous owners during a limited transition period. We flew to the editorial offices of the magazine to welcome our new employees, provide them some background on our organization and how we operated, and assure them we were focused only on a smooth transition to operations under the Society for the time being, not radical change. This was an important early step and one I’m glad we took.
We made contact with the numerous vendors that help make the publication of the magazine possible and struck new contracts. They were all very supportive and willing to work with us to continue to ensure the magazine’s success. We made the strategic decision to make the freelance contributors who had been short-changed whole, which bought a ton of goodwill and will continue to pay off in the longer term in many ways. We uncovered challenges with the web store associated with the magazine that required closing it for a period of time, disrupting both sales to consumers and to businesses, but we managed to keep that closure period short. The magazine has continued publishing, smoothly, even while all the business arrangements were restructured, mailing certificates transferred and short-term issues were resolved.
I found it important during the process to keep our Board fully informed of what was happening and sent regular communications with them detailing what we were doing and why, the challenges we faced and the implications for us in the longer-term. If I erred, I erred on the side of providing greater detail. This proved to be very important as the excitement of the process led some of our leaders to want to get involved in the nuts and bolts of the process or the magazine early in the transition process, which would have been potentially disruptive. Keeping them fully informed combined with providing a timeline for when their advice and input would be needed provided a channel for their enthusiasm without taking our focus off of critical transition issues. The worst time to think about long-term strategy is in the middle of trying to transition a monthly publication to new ownership. Far better to get the operation successfully up and running and then think about strategic changes or enhancements.
Although we are in the early days of bringing on board this new strategic asset, which is tightly aligned with our mission, I view it as a tremendous success for our organization. We managed to make tremendously significant strategic decisions in a short time period (for a non-profit). We managed to efficiently use external advisors to help us where we had gaps in expertise, while retaining critical analysis and decision making for our staff and leadership respectively. We bought something we likely could not have built ourselves, at least not for the price we paid, and we have significantly impacted our ability to deliver on our mission in the long-term.
You never know when opportunity will knock. Non-profits have historically had a hard time capitalizing on short-term opportunities. We happened to be ready as an organization to capitalize on a situation we could not have anticipated, which enabled us to accomplish a goal we could not afford otherwise. Time will tell if we can achieve all the things we think this acquisition enables, but we are on a positive path for now and I’m certain we will be successful.
Having been drawn to being an astronomer by reading Sky & Telescope as a 10th grader, it has been a thrill to bring this venerable magazine under AAS ownership. Our members and the readers of the magazine have shared their strong enthusiasm for our actions and we now have the challenge of delivering on those expectations. That’s a new set of challenges the AAS fully embraces and something I am sure we can deliver on as we continue to strive to enhance and share humanity’s scientific understanding of the universe.