In November, Tuscaloosa, Alabama-based Randall Publishing, which specializes in trucking, construction and industrial magazines and generates annual revenue around $55 million, surprised the industry by announcing its sale to Wachovia Capital Partners and Randall CEO F. Mike Reilly's newly-formed Randall-Reilly Publishing, LLC. The deal, estimated at $75 million, effectively ended the interests of the family and estate of H. Pettus Randall III in the 71-year-old publishing company.
The transition should be a smooth one for Randall as Reilly continues to oversee the company he's run for years. The question is how Randall-Reilly, which has enjoyed solid if not spectacular performance over the last three years thanks to a boom in its core markets, will continue to grow now that it has "a little more horsepower under the hood," as Reilly says. FOLIO: spoke with Reilly about what prompted him to buy out the company and how he intends to keep the momentum going forward.
FOLIO:: How did this deal come about?
Reilly: It started about the first week of May. I was at a management retreat with senior managers and Kathy Randall, and she mentioned to me that it looked like the children of [Randall founder] Pettus Randall were going to pursue other opportunities. Pettus had told her that absentee ownership usually doesn't work and that third generation ownership usually doesn't work so well either, and she asked if I could maximize the value of the stock for her and her children.
I started the process with a proposal to the family that the best way to maximize the value was to entertain an offer from the management group. Had we gone to an auction, depending on who the high bidder was, I may or may not have wanted to go. We went to New York, hired a financial advisor in Roland DeSilva and went to Wachovia Capital Partners and asked for their help. The deal closed November 1.
Back in 2001-02, we were like most every other publishing company. We had blown a lot of money in the online space, and then came the advertising downturn. We had calls from a lot different equity groups to lend us money to help us pay off our debt. Wachovia Capital Partners had told us you need to stay away from equity as long as we could and use it when you need to do something better than that.
FOLIO:: Will this represent a significant change for Randall-Reilly? Obviously you've been calling the shots all along but are there areas you'd now like to emphasize more?
Reilly: Not really. Being a family-owned company we pretty much had to eat what we kill. We're focused on growth. You can't stand still in this business, you're either going forward or going backward. We've had some pretty solid growth, especially the last three years, from an EBITDA standpoint.
It gives us a chance to look at some things that were out of reach for us that maybe now might not be. It's not a big change in our management strategy, we just put a little more horsepower under the hood.
FOLIO:: You mentioned the company has done well in the last three years, particularly on EBITDA. How do you feel about the company's performance in 2005?
Reilly: We had particularly good luck on our trade show, the Great American Truck Show, because of the strength of the trucking industry. It's the second largest trucking show in the industry now. Our database company had double-digit growth in both sales and EBITDA. We started TruckersNews En Espanol , targeting the Hispanic market. We started a truck stop directory and we've had a lot of ancillary projects on our construction side. Our construction book, Equipment World , is the most profitable book we have. It was a solid year of lowering costs and increasing sales.
FOLIO:: You mentioned EBITDA has grown over the last three years. Can you give us the specific number there and tell us what's driving that growth?
Reilly: I have to be careful with our new partners about giving out our new EBITDA number but I'd say in the last three years we've had 50 percent growth in EBITDA. I'd like to consider us the Southwest Airlines of b-to-b publishing. We formed some partnerships with some printers for direct-to-plate about three years ago that allowed us to cut out a prepress department. We've gotten more productive and we've gotten more cost-efficient. And sometimes it's better to be lucky than good. Construction and trucking have had a very good last two years, don't forget that. Sometimes it's easy to think you're smart when you were lucky.
FOLIO:: You mentioned you've seen solid performance from the database company and the trade shows;how does it break down as far as print, online, live event and data? What are the real workhorses?
Reilly: Seventy percent comes from the traditional magazine side. Twenty-five percent is coming from the data business and about five percent from our online business. We finally started making money on our online properties and it's mainly from trucking firms recruiting drivers over the Internet. Some of our big trucking firms are telling us that up to 10 percent of their hires are coming from applications over the Internet. On e-Trucker, our trucking portal, online applications for trucking companies is our main source of revenue.
FOLIO:: How do you see that revenue ratio going forward into 2006;will those ratios hold fairly steady?
Reilly: I think they will hold steady. We will probably increase overall but that will come from online. It's a small percentage now but it could double from five to 10 percent. It will be a good year in trucking and construction again so we'll have 20 percent growth overall from an EBITDA standpoint.
FOLIO:: How much of a priority is print for Randall-Reilly?
Reilly: I think print will always be our lead generator. [B-to-b publishers] are starting to smile about making money online. After the last five years or so, any kind of black ink is a huge relief. Most of my friends at ABM meetings say online is up, and it is but as an overall percentage of overall volume, it's in the single digits for almost everybody. I think it will get better but as an industry I still think we're going to be 90 percent print.
FOLIO:: Randall-Reilly is one of the few examples of a b-to-b publisher succeeding with rich data. Many publishers, particularly small to mid-sized, are having trouble getting their arms around it. What advice do you have for them?
Reilly: Rich data is a pretty big term. If we just look at the data we're collecting off our BPA statement, there's already a lot of data that you're already paying for that you can sell to your advertisers. Years ago we were asking what type of freight do our readers haul. I asked my publisher, 'How do we use that? If we don't use it every question you ask is costing us money. Is there a way you can sell that to somebody?' If every small publisher would just look around their office there's some rich data somewhere that he's already paying for. And you don't have to necessarily charge for it. If rich data helps them sell more ad pages, that's helping somebody get rich.
FOLIO:: What do you want to do next year?
Reilly: Next year I'm predicting at least a 20 percent increase in EBITDA. In five years, I think we can double it.
FOLIO:: We've seen an explosion of high-dollar deals and a wave of CEO departures in 2005. Do you think we'll see more of this in 2006?
Reilly: There are fewer and fewer strategic buyers and more and more financial buyers. What that means, if you're a good b-to-b publisher, another financial buyer doesn't have another publisher or CFO he can sit down there. If there are fewer and fewer of us, and you make sure you're the best at what you're doing, you've got all the job security in the world.