Boston-based ABRY Partners LLC
has filed suit against Providence Equity Partners, Inc.
, alleging it had overpaid for F+W Publications;the special interest magazine and book publisher it bought for $500 million in August;based on misleading financials provided by Providence Equity and the Cincinnati-based publisher, according to the Associated Press.
ABRY seeks to rescind the deal or collect unspecified damages according to the report.
According to a complaint filed in a Delaware court, ABRY alleges that F+W
artificially inflated its revenue for the six-month period ended June 30, 2005.
In the complaint, attorneys for the plaintiff say that F+W “had employed a variety of devices and schemes artificially to inflate the Company's reported revenues…”
Once such scheme apparently involved “channel stuffing” where ABRY alleges that F+W offered “unprecedented and grossly abnormal discounts to retailers who sell certain of the Company's books, in a manner inconsistent with the Company's past practices.”
ABRY also states in the complaint that it discovered that an employee in F+W's magazine division kept a second set of financials that reflect “a more realistic accounting” of newsstand revenues.
Providence Equity has not yet filed a response to the lawsuit.
A ﾑQuiet’ Sale Turns Not-So-Quiet
F+W, the 92-year-old, Cincinnati-based enthusiast publisher, quietly sold to private equity fund ABRY Partners last August, so quiet that many media outlets, including FOLIO:, did not report it for weeks following the deal. ABRY, with $7 billion of assets under management, appointed former Martha Stewart Omnimedia COO and president of publishing David Steward as CEO of F+W.
“It seemed to me F+W’s investors were getting out awfully quick. That should have raised a big red flag,” a source with knowledge of the private equity circuit said in August.
Despite ABRY's litigation, however, the suit may end up drawing attention to their due diligence practices. The suit's focus on revenue misrepresentation inevitably raises the question of Abry's effectiveness in reviewing the company prior to sale.
ABRY president Royce Yudkoff declined to comment when contacted by FOLIO:.