In the first blockbuster deal of 2007, private equity firm Veronis Suhler Stevenson said this morning that it has signed a deal to purchase Advanstar Communications for $1.15 billion. Citigroup Private Equity and New York Life Capital Partners are "co-sponsors" of the investment, VSS said. A source familiar with the deal, which was signed at 5 a.m. this morning, said this is VSS’ largest buy to date (the company has sold investment companies for larger payouts, however) and that a deal this size required a "significant" equity investment from VSS’ two co-investors.

The deal includes the purchase of Advanstar’s 60 publications and directories, 95 electronic publications and Web sites, and 47 regional and international trade shows and events. The company is currently owned by DLJ Merchant Banking Partners III LP, which purchased the company in 2000 for $900 million plus the assumption of $520 million in debt.

The source said that VSS approached Advanstar privately about the deal "several months" ago. "The whole idea was led by (VSS partner) Scott Troeller," said the source. "The investment thesis was that the current owners wanted to sell the business. They went through a public auction that didn’t work in 2005. And, since they went through a busted auction already, maybe they would consider a private transaction to avoid the publicity and the costs that a public auction entails."

DLJ put Advanstar up for auction in July 2005 and Blantyre Partners, a company formed by former Advanstar CEO Robert Krakoff with backing from P.E. firm Blackstone Capital Partners, had all but signed on the dotted line by December of that year when the deal fell through because of a high asking price and a debt-financing penalty.

Sources familiar with the 2005 public auction said buyers were hesitant, at the time, to pay more than $800 million to $900 million for the company, which, in late 2005, had about $275 million in annual revenues and was carrying about $700 million in debt. There was also a $75 million premium tied to the 2005 sale to buy out the company’s existing bond holders. The source familiar with the VSS deal said there is still a breakage fee, but it is "substantially less."

Advanstar CEO Joe Loggia said this morning the company is carrying slightly less debt these days due to the April 2005 sale of its Information Technology & Communications, Travel & Hospitality, Beauty, Home Entertainment and Abilities and Portfolio groups to Questex Media Group for $185 million. He said all debt will be tendered and restructured when the sale to VSS closes in the second quarter of 2007. The company currently does about $320 million in annual revenues, Loggia said.

Advanstar’s products fall into three categories: fashion, life sciences and power sports – a largely enthusiast group. The source said Advanstar’s trade show assets were most appealing to VSS. "It has some of the largest and most sustainable trade show assets in the world," the source said. "The company also has good growth margins, a good management team and much better organic growth rates than most b-to-b companies and a strong cash flow."

The Future of Advanstar

Loggia, who became CEO of Advanstar in 2004, and his management team will continue to helm the company and will be "significant shareholders" in the company after the deal is finalized. "I don’t think you would have been able to do a deal like this unless you had the backing of the management team," said the source.

Loggia, who is based in Los Angeles, said this morning there are no plans to move or close any of Advanstar’s offices, which operate throughout North America and Europe. "Operations will not be significantly affected by the transaction, but change is constant and we are always looking at ways to operate better," he said. "But there are no plans to close any of our operations."

Loggia said partnering with VSS gives Advanstar ready access to more capital, which will enable it to become a significant buyer of media companies. "Anytime you’re owned by private equity and sold, employees are going to worry about what is going to happen to the operations and, if it’s a strategic buyer, how are they going to change and what’s going to be eliminated," he said. "But all that’s happening here is that we are going to become strategic buyers."

Loggia said Advanstar is looking to acquire companies that complement its existing platforms, as well as companies operating in adjacent platforms that can offer "synergy" to its existing platforms. "We’re also looking at companies that are in categories we don’t operate in, but share a similar strategy to ours," he added.

Linda Zebian Contributed to this Story