FOLIO:'s Top Deals of 2007.
BUYER: Source Interlink
PRICE: $1.2 billion
DATE: May 2007
TAKEAWAY: The final divestment for Primedia wipes away its debt after a five-year pay down. Source Interlink, however, emerges as a "shocking" winner, paying well beyond what the sale was expected to collect.
Source Interlink, a marketing, merchandising and fulfillment company backed by billionaire Ron Burkle's investment firm Yucaipa Cos., emerged last May as a dark horse winning bidder for Primedia's 70-title, 90-Web site Enthusiast Media Group in a deal valued at $1.2 billion in cash.
The sale of Primedia's enthusiastdivision was essentially the last component in a massive dismantling. Following the deal, which finally freed the company from its remaining $1.3 billion debt load, Primedia was left with Consumer Source Inc., a consumer real estate and apartment guide publisher, which it continues to run.
With revenue of about $524 million and EBITDA of $100 million, PEM commanded an EBITDA multiple of about 12-times. This offering beat out a host of other private equity heavy hitters reportedly including Elevation Partners, Quadrangle Group, Wasserstein, and Veronis Suhler Stevenson.
Also significant was Source Interlink's distribution capabilities. In 2005, the company acquired Chas. Levy Circulating Co. for $30 million, giving it about 20 percent of the single-copy magazine distribution market. This aspect raised some red flags over the deal. The purchase of the magazines was a concern to competitive publishers who wondered if the new assets would receive preferential treatment throughout the distribution chain.
COMMENT: "It is a stunning development that a publicly owned distribution company controlled by Ron Burkle is buying one of the largest portfolios of enthusiast magazines. It's shocking. The valuation is significantly higher than they would have gotten from others."