The Emerging Giant
In the last eight years, Wasserstein & Co. has made three standalone magazine-industry acquisitions and launched one start-up. Its most recent acquisition: last year’s purchase of Prism Business Media for $385 million. The Prism deal gave the New York-based investment firm, which also owns American Lawyer Media (ALM), The Deal LLC, which Wasserstein started, and New York, a combined $437 million in approximate annual magazine-publishing revenue, making it one of the biggest magazine-companies in the country. The properties, except for New York, which is managed under a separate Wasserstein trust, are held under Equity Partners Funds I and II, with combined assets of $1 billion.
Wasserstein began its media acquisitions in 1997 with ALM. The Deal was launched in 1999, New York acquired in 2004 and Prism just last year. Through it all, the firm has done its share of add-on acquisitions as well, a plan it will likely follow particularly aggressively with Prism.
Leading this emerging empire is Anup Bagaria, Wasserstein’s vice chairman, who is responsible for the firm’s media holdings. Each of the Wasserstein companies has its own chief executive and they all report to Bagaria, making him a super-CEO of an increasingly influential company. (Wasserstein also took a minority interest in Hanley Wood when it was acquired by J.P. Morgan last year.) Folio: spoke with Bagaria about Wasserstein’s;and his;rise to prominence.
q: Describe your role at Wasserstein.
a: I along with everybody else look at our various investments for our fund. I run our media investments here. All the companies operate independently, but we do have the senior management of the various b-to-b companies meet with the other CEOs and senior management to discuss best practices, trends;really just a sharing of ideas. What’s working, what’s not working, what are circulation trends, what people are doing online, conferences, trade shows;and cost cutting across the board.
q: How often does that happen?
a: They talk all the time. We talk to our companies in monthly meetings, weekly and daily calls, really depending on what set of issues are there. I would say once a month, once every two months our CEOs and senior management talk among themselves about what’s going on. We have people talk and meet on a regular basis;less so with New York, that’s consumer. On the b-to-b side [Prism CEO] John French will meet with [ALM CEO] Bill Pollack or the finance side will meet with finance or circulation will meet with circulation.
q: Do they report back to you on meeting results?
a: We have a fairly open communication with everybody, so we have a good idea of what sorts of projects they’re working on together.
q: What’s your mission with regard to each of the operating companies?
a: I am extremely involved with acquisitions as well as the strategic direction of where we’re taking acquisitions and any changes we need to make at them. We partner with our CEOs and CFOs and senior management to decide the direction of the company. We tend to have an open dialog. Again, across the board we have what I would call the best CEOs and best senior management, so our job becomes that much easier when we have strong management teams in place. All of us here at Wasserstein are involved in terms of strategic direction, financing, budgets, acquisitions, any major hires. We sit down as partners with them to figure out what the next steps are.
q: How have things changed for you since the Prism deal?
a: We’re working with John French and [COO] Andrea Persily and the team there in the same way we do with ALM or The Deal.
q: What attracted Wasserstein to Prism?
a: What was attractive there was the strong management team. That was first and foremost, and we felt that we could work well with them. We also felt with the right capital structure there, which we were able to complete, the company would have very attractive cashflows. So we felt comfortable with the growth prospects. 2006 and 2007 look great. And we felt there would be additional acquisitions that we would be able to bolt on.
q: What was particularly challenging with the Prism deal?
a: It was part of Primedia, so one challenge was all the bumps in the road with becoming a standalone corporation. Getting the benefits planned, changing the name;that took a little while.
q: Why the focus for Wasserstein on the b-to-b side?
a: B-to-b is a great space. Good properties are good cashflow generators and I think the advertising market is picking up. But I also think publishers need to be much smarter at figuring out what their customers want and what their advertisers want. Whether it’s putting money in print publications or online, or spending money on trade shows or conferences, it is really about customizing for the customer or the advertiser in the space. And we think there are lots of opportunities for expanding the brands, whether doing more online or doing more in conferences. A lot of these publications, with the right capital structure, tend to be great cashflow generators, which obviously is extremely intriguing.
q: Talk about the two Equity Partner funds.
a: Equity Partners I is fully committed, it’s spent. It was a 1997 fund. II has a little bit more to spend and was started in 2001. ALM and The Deal are under I. New York is separate and held by the Wasserstein trust. The Hanley Wood and Prism assets are held under II. Equity Partners I had about $400 million between the fund and co-investors. The second one, between the fund and co-investors, we put about $600 million to work. When it’s done it will be about $750 million. It depends on how much co-investment dollars we take in with future investments. For instance, in Prism, we had two partners come in with us, one was Highfields Capital and Lexington Partners, which was also a co-investor in the Hanley Wood deal.
q: Do you necessarily look for co-investors on these deals?
a: Sometimes. We’ve worked with some of these partners in the past so a lot of times we like to bring our partners along with us. It’s opportunistic, if they like the space and we’d like to have someone else to bring more capital.
q: What do you consider the right capital structure?
a: The debt market has been very good, whether it’s bank debt, whether it’s high-yield, right now at least. Many of the deals last year;whether it’s deals that we participated in or other folks did;were done with bank debt. On the other side, publishing companies performed well, so the bank debt market has been happy with the progress. What bank debt does is let us put less equity in from our side and get flexible terms, so if there are bumps down the road you can work with the banks. We’ve worked with CSFB, UBS and GE on our various credit facilities. It’s been good levels of leverage in addition to low rates.
q: What are the criteria in a target company’s financials?
a: I don’t think there’s really a size that we target, at least for standalone acquisitions. We look at companies that we think can continue to grow. We look for management teams that we’re comfortable investing with. That’s our main criteria in terms of deciding.
q: The Prism deal was largely heralded as a good opportunity for future bolt-ons. True?
a: Sure. And we made two add-on acquisitions already in December. Relatively small acquisitions that fit in very nicely with the platform.
q: What are your growth targets for 2006?
a: They vary by operating company. And all of our companies are private companies and so we don’t disclose that. But at the same time, what I can tell you is that we have high hopes for 2006 at our various companies. Strategically it’s more aligning our print publications with online.
q: What are you seeing for 2006?
a: Compared to last year, bookings are up. What we’re hearing from advertisers, what we’re hearing from readers, all sounds exciting. Especially on the online side, I think we’re going to see great growth.
q: You’ve had ALM and The Deal for a while now. Will you continue to hold those?
a: Sure. We’re excited about the growth prospects with both those companies. We’re very happy holding.
q: Are there synergies across your operating companies?
a: I think it’s best practices that are the synergies. Maybe with paper and other things we’ll look at opportunities to do all together, printing, but it’s really sort of ﾑHere’s what you’re doing in direct mail, let’s take the best practices and learn from that. Here’s what you’re doing online, let’s take that.’ I’d say the common synergies are best practices.
q: Why are you going beyond the traditional 3-5 year holding trend with ALM and The Deal?
a: We try to analyze what we think are the growth trends and what we think we can continue to do with the business, and if we think there’s a lot more to do we decide not to sell. It’s sort of fluid. If people approach us with valuations that make sense it’s hard not to look at them.
q: How do you think private equity has affected M&A in the magazine industry?
a: The private-equity guys are extremely excited about the b-to-b space. 2006 will have lots of transactions. I don’t know if it will be quite the pace of 2005, but I do believe there will be lots of them.
q: What are some of the criteria for making b-to-b such an attractive market?
a: Cashflow. I think the cash generation in a b-to-b entity works because of the low cap-ex requirements, working capital tends to be positive, so it’s not a big user of cash. And the attractive debt environment. If these businesses are capitalized correctly, they generate lots and lots of excess cash.
q: Would you consider looking at more consumer targets?
a: Yeah. We’ve looked at consumer things in the past.
q: Going forward in the next six months to a year, are you looking at some larger acquisitions or bolt-ons?
q: Any challenges you see going forward for the magazine industry?
a: It’s continuing to evolve. It’s not saying how to get more print dollars in, but focusing on what the advertiser wants, whether they want to spend more money online or with trade shows or with print. The industry needs to sort of grow with the advertiser and meet the needs of what they want, as well as those of readers, whether delivering them a print magazine or e-mail newsletter. It’s constantly looking at what you’re doing;what’s working, what’s not working, and changing with it.
Wasserstein & Co. Media Holdings
American Lawyer Media
date acquired: 1997
fund: U.S. Equity Partners I
revenue: $150 million est.
date acquired: 1999
fund: U.S. Equity Partners I
revenue: $15 million est.
date acquired: 2004
fund: Under a separate trust
revenue: $50 million est.
date acquired: 2005
fund: U.S. Equity Partners II
revenue: $222 million
http://www.wasserco.com/ | http://www.primediabusiness.com/ | http://www.americanlawyer.com/ |