After Two Acquisitions in Two Days, Primedia Now Says It’s Selling Its Biggest Unit
On the heels of announcing two acquisitions, Primedia said today it is exploring the sale of its largest division, the Enthusiast Media segment – home to 70 magazines (including three it purchased Thursday). Primedia has hired Goldman Sachs and Lehman Brothers to manage the process.
In a statement, Primedia CEO Dean Nelson said the company’s board of directors believes the market is favorable for a sale of the enthusiast group, which had revenues of $500 million in 2006. He said the company, which has debated for more than a year the possibility of “spinning off” its Consumer Guides group, is exploring the sale as an alternative to the spin-off and as a way of paying down the company’s roughly $1.3 billion debt. “Given the multiples Primedia received from the sale of its Outdoors Group and the particularly strong investment and debt markets, the board believes the best cost of action for Primedia shareholders is exploring the complete sale of PEM,” Nelson said in a statement.
Media banker Reed Phillips, managing partner of DeSilva + Phillips, said he expects to see a high-level of interest in the titles. “I think you’ll see some of the same folks that came out for the Time4 sale, but I think you’ll see even more people come out for these titles,” he said. “This is a much stronger business than the Time4 business. The Time4 model needed some work to improve on it, but this is already an excellent business operating in an extremely good platform.”
Phillips said the company is focused on selling off the company piecemeal so that KKR, Primedia’s largest shareholder and essential owner, can recoup its investment.
Another media banking source agreed. “Clearly it’s been in the works for a while now,” said the source. “If they get a half-way decent price, and I think they will, it will pay down all of the debt. This is all part of a liquidation strategy, it’s well-thought out and will probably be pretty successful.”
The source said the magazines would more than likely go to a private equity bidder.
Having sold its Outdoors group to Intermedia Partners for $170 million and declared its underperforming Education segment discontinued last year, the company will be left only with its Consumer Source segment – a publisher and distributor of free real estate sales and rental guides – if a sale is successfully brokered on the enthusiast group.
Primedia sold off several pieces of its company last year. Among the divisions and products to go were its Crafts group, which went to Sandler Capital Management for $132 million; its Gems group, which went to Interweave Press for an undisclosed price; and the hunting, fishing and shooting assets from its Outdoors group to Intermedia Partners for $170 million.
This week, the company made two acquisitions, buying the Web site RentalHouses.com, as well as the assets of Toronto-based VerticalScope’s Modified Automotive Group, which will become part of its enthusiast group. RentalHouses.com will be integrated into the company’s Consumer Source group.
Revenue for the enthusiast group, which also includes 65 events, 2 television shows and 400 branded products, increased 3.9 percent in the first nine months of last year to $467.6 million, from $449.9 million in 2005. EBITDA for the segment in the first nine months decreased slightly from $88.4 million in 2005 to $88.3 million in 2006, giving the group a profit margin of about 19 percent.
The company could net a large price tag for the assets. “I believe the EBITDA on these magazines is over $100 million. So it’s not too hard to get to that billion-dollar number. It may not be a perfect one-to-one kind of thing but it will be close enough,” the source said. “If they can sell these things they get out of a slow-moving business, which is the consumer magazine world, and they get into a faster-growing business with much higher margins and they have a debt-free company.”
The consumer guides segment generated EBITDA of $57.6 million in the first nine months of 2006 on revenue of $244 million.
Whether the enthusiast media segment is sold as a whole or is broken apart remains to be seen. “The curious thing is that they’re hiring both Goldman and Lehman Brothers,” the source said. “Either one of those guys could do it. So one possibility is they’re trying to split it up and sell it in parts, so you’d need more than one broker.”
Still, selling it pieces does present challenges. “Trying to manage two simultaneous sales would be hard. Managing four or five, which is what it would break up to, would be really hard,” the source added. “On the other hand, I don’t think there’s a big risk they would get stuck with anything. Those are pretty good titles, I think there would be buyers for all of them.”
Primedia 2005- 2006 Divestments
About.com, Feb. 2005
New York Times Co.
Primedia Business Media, Aug. 2005
Wasserstein & Co.
Crafts Group, June 2006
Sandler Capital Management
Gems Group, Sept. 2006
Hunting, Fishing, Shooting Assets, Dec. 2006
Climbing magazine and related assets, Dec. 2006