Article:

The company that made evening papers extinct

17 October 2014

Graham Wakeman , Partner, Specialty Taxes |

BDO's Technology, Media and Telecommunications team in Sydney pulls the curtain back on how success at Salmat was underpinned, not only by the speed of technological integration, but with the complementary use of advanced tools.

Salmat Co-founder, Phil Salter, urges, ‘culture is paramount’. To achieve a projected double digit growth in the next 12 months, Salmat needed to re-align with its core value for customer intimacy. This competence drove evening papers to obsolescence and is essential in repositioning the enterprise as a challenger in the digital age.

Salmat – now at a market cap of over $300m - began as a letter box distribution business. Circa early ‘80s, news was still circulated on a half daily cycle and evening papers were a dominant advertising channel. Leveraging its distribution network, Salmat offered an alternative and more concentrated platform for advertisers. The team built a list of prospects from cut-outs of advertisements in evening papers, and Salmat banked on businesses’ constant need to improve their reach and effectively stimulate purchases.

Businesses soon transitioned to catalogues and evening news editions were rendered obsolete within a few years. Deconstructing this rapid diffusion, Salter pin-points the necessity of involving the end-user and asking ‘exactly what the customer is thinking’. As Salter sees it ‘sales is a powerhouse of profits’, and the experienced salesman advises ‘talk to your customers, not at them’.

Big push into digital - yet to reward 

Pursuing this vision of customer intimacy, Salmat has undergone a series of major M&A transactions to better engage with consumers, who have largely transitioned online.

In 2010, Salmat acquired four businesses from the Photon group, augmenting its communications portfolio with service lines such as SMS network management and web development. Subsequently, in 2012, the company sold its BPO division, which delivers outsourced direct marketing, to Fuji Xerox for $375m. Salter explains diversifying from a paper-based, albeit profitable, unit as a necessary strategy for the firm must evolve with changing market preferences. He also notes that BPO is restricted by a growth ceiling as mail continues to diminish by 6% p.a. 

Salter revealed that the digital adoption has yet to yield returns for Salmat, and further recognised that whilst News Corp has had considerable success with its investment in realestate.com, none of the traditional domineers have been able to engineer this transition on a large scale. He elaborated ‘valuation used to be a multiple of profits, now it’s a multiple of turnover’, emphasising the elevated importance of other metrics such as traffic and online engagement (unique visitors, repeat visits, etc.).

Concluding, Salter states ‘the [business] model has changed, and Salmat must adapt.’

Pivot, don’t deviate

Cuts in the advertising budgets of ailing big and mid-tier retailers, Salmat’s primary clientele, has placed additional strain on the business, which is aggressively pursuing inorganic growth via M&A to keep pace with the digital evolution. As a result, Salmat’s shares slipped by 14% in 20141. Despite this, Salmat intends to acquire more analytics and CRM businesses - projected $100m in value - from mid to late next year, as it works towards a consolidated and more robust structure.

High value purchases are expected as Salmat is pivoting from decades of reliance on a profitable paper-centric model. Shifts in advertising spend globally, and especially in the Asia-Pacific region, shall persist as obstacles for traditional industry leaders. In 2017, relative to 2012, advertising will be lower for print media, but higher for every other category - particularly digital which has a projected 14.7% growth compounded annually to 20172. This excludes print media from the booming growth in APAC, which is to account for 63% of total increase in advertising spends and from which digital will capture the most value.

However, post M&A integration is another major challenge to consider. In regards to the acquisition of the Photon businesses, Salter highlights the risk of overvaluing synergies ‘we bought the business, but did not inherit the passion of its people. They were done with it.’ This also poses a threat of cultural clash to Salmat, whose co-founders, Salter and Mattick, still own over a quarter of the company.

Evidently, Salmat’s long-term success is not merely underpinned by the speed of technological integration, but rather the complementary use of advanced tools to enhance Salmat’s unique solutions for customer needs.

That is, staying true to the principle ‘talk to your customer, not at them’.

1Heffernan M. 2014, ‘Junk mail company Salmat upbeat on plan to add digital to 'old media'’, Sydney Morning Herald, July 24, http://www.smh.com.au/business/media-and-marketing/junk-mail-company-salmat-upbeat-on-plan-to-add-digital-to-old-media-20140724-zwc00.html

2Mckinsey & Company 2013, Global Media Report 2013, London.