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After RBI’s Failed Sale, Big Media M&A ‘Dead’

Observers weigh-in on what’s next for Reed, magazine industry deals.



By Jason Fell
12/11/2008

RELATED POST: One More Blow for Reed

In the 10 months since London-based Reed Elsevier first announced its intention to divest its b-to-b publishing arm Reed Business Information, the ensuing sale process evolved into a bellwether for media deals in a brutal economy.

Now that the sale has been called off—with Reed citing the rapidly deteriorating global economy as the reason—industry observers told FOLIO: this week that deals of this size are all-but-impossible to pull off in this climate, and the market for media deals in general is, as one executive put it, “dead.”

In its announcement Wednesday, Reed Elsevier said it will reconsider a sale “in the medium term,” when market conditions become “more favorable.” In the meantime, according to one M&A player, we should expect Reed to consider selling RBI in pieces.

“Buying a global business is and will be a difficult opportunity for a private equity group,” said one industry source. “Reed might wait until things settle down, hopefully in 2009, but might consider selling individual pieces, like its chemical business group in the U.K. and BuyerZone, a lead generation business. And, of course, there’s Variety, which would be a vanity play, a trophy property for a buyer.”

It wasn’t immediately clear if Reed’s decision would signal sweeping layoffs, the closing of magazines or other cost cutting initiatives at RBI. A Reed spokesperson did not return a request for comment.

“The hardest part of this decision is going back to the RBI global management and staff, telling them ‘never mind’ and to go back to work with the same gusto and enthusiasm as before they announced that they didn’t want them,” another M&A executive said. “Also, note that the global CEO, Gerard van de Aast, did not wait around to find out what would happen.  He got out of Dodge on the first train. Good message to the team. “

What it Means for Magazine M&A

“While the scale of the RBI deal is much greater, what this decision means is that for all practical purposes, the media M&A market is closed until further notice,” Oakstreet Media founder and former VSS managing director Tom Kemp told FOLIO:.  “Some smaller deals with strategic buyers that don’t require financing will still get done, but for the most part the deal market is dead.”

Reed’s decision to take RBI off the block, Kemp says, made sense in light of the global recession and uncertainty of economic recovery. “I don’t think this decision has anything to do with the long term viability and attractiveness of the media/magazine business,” Kemp said. “In fact, the sale process attracted some of the highest quality global financial buyers including Bain, TPG, Apollo, Apax, Cinven, and DLJ Merchant Bank.”

Until earlier this week, Bain was said to be the auctions’ sole remaining bidder. The bids had fallen from approximately $2 billion to $1 billion.

“It’s not surprising that the RBI deal or any other big media deals aren’t getting done in this market,” another source said. “Publishers right now have no idea what their first quarter is going to be like next year. Will advertising be down 20 percent? Fifteen percent? Ten? If they don’t know, can they expect buyers to feel comfortable spending their money?”

While the RBI deal is off the table, other big deals, such as ABRY Partner’s sale of Cygnus Business Media, hang in the balance.

“The Cygnus deal has struggled for several of the same reasons including the lack of new credit available and a deteriorating economy,” said Kemp. “The deal also appeared to have only one serious buyer which is also fraught with risk for sellers. There were some additional complications to the Cygnus process such as agreement by all lenders to the transaction, which proved to be a challenge.”

By Jason Fell
12/11/2008




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