Gruner + Jahr

buyer: Meredith Corp. and Joe Mansueto | seller: Gruner + Jahr USA | price: $350 million for Meredith; $35 million est. for Mansueto | date: May/June

takeaway: Meredith's acquisition gives it a 33 percent revenue gain, 30-million circ, 60-percent increase in ad pages and makes it the second-largest consumer-magazine publisher in the U.S. Mansueto Ventures rescues two titles from the brink, but work needs to be done to bring Inc. back to its former glory and give Fast Company a fighting chance for a revival.

Last May and June, Gruner + Jahr, a unit of the German conglomerate Bertelsmann, effectively ceased its United States magazine-publishing business by selling off all six of its titles;four to Des Moines, Iowa-based Meredith Corporation, and Fast Company and Inc. to investment-research firm Morningstar founder and CEO Joe Mansueto.

For $350 million, Meredith became the second-largest consumer-magazine publisher in the United States, with revenues at $1.2 billion. The four titles, including Parents, Fitness, Child, and Family Circle, generated an EBITDA in the "low-to-mid $30 million range," said chairman and CEO William Kerr, which made the multiple about 11.6X EBITDA.

The sale occurred on the heels of circulation scandals that had been dogging G+J and that prompted then-CEO Russell Denson;who was largely unaware of the pending sale until it was final;to announce only two months earlier the "scary" step of rolling back ratebases to shore up circulation.

Consequently, among Meredith's top priorities was to restore circ confidence in its new titles and assemble new leadership;not to mention the daunting task of welcoming over 300 new employees. "We placed three of the publishers and one editor-in-chief," says president and CEO Steve Lacey. "And we went on a very aggressive road show with the key advertisers to explain why we made the acquisition and lay out our plans to strengthen the circulation of those businesses."

Lacey adds that part of the plan to shore up circ involved moving the acquired titles away from an agent-source model to a direct-to-publisher model using Meredith's customer database and a 20 million-piece direct-mail campaign in 2006.

As for Mansueto's two titles and his newly formed Mansueto Ventures, concern swirled around the future of Fast Company. Sources speculated the magazine would be gutted and folded into Inc. Not so, says John Koten, Mansueto Ventures CEO and editor-in-chief of the two titles. Inc. is rebuilding the ancillary business that was dismantled under G+J. For Fast Company, which "needs more support and love and care than Inc.," says Koten, a frequency decrease from monthly to 10-times will give editors room to solidify the magazine's editorial identity as a "business magazine for creatively focused people" and finally shake its ties to the Internet boom and bust.

Koten says Inc. is up about four percent for its January and February issues in ad pages and both magazines are up in revenue for January, but concedes this was not too difficult since "G+J used to give away a lot of free pages, and we've stopped doing that."

In line with the rest of the industry's experience, Koten expects online revenues to increase sharply. However, he may be looking to that online growth with a little more anticipation than most. BusinessWeek reported in January that Koten revealed in an internal memo that the two magazines suffered a net loss of over $10 million in 2005.

In addition, both titles will have to contend with Conde Nast's entrant into the business-magazine market in 2007;an event for which Koten will spend 2006 preparing.

comments: The Meredith purchase was very smart. . .The Mansueto purchase is a roll of the dice.

http://www.meredith.com/ | http://www.morningstar.com/ |

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