Market Bullish on a Penton Transaction
Source: Sale price may hit $550 million.
First-round bids were due at the end of last week from companies interested in acquiring Penton Media, and informed sources are saying the level of interest in the company is extraordinary.
At least 10 companies submitted formal bids, with the amounts ranging from $500 million and up, two sources told Folio: Alert Tuesday. The bids came primarily from private equity firms. "Response was VERY robust," one of the sources said. "I agree the company will likely command a price in excess of $500 million."
If the company sells for more than $500 million, as it now appears on its way to doing, it will be the biggest transaction in the b-to-b space since last year’s $650 million Hanley Wood deal. It’s one thing if Hanley Wood sells for $650 million. With revenue at the time of the sale of about $225 million and EBITDA of about $50 million, Hanley Wood is a model of what to do right in b-to-b media.
Penton, on the other hand, has been seen as a troubled company. A string of late-Nineties acquisitions;six of them in four years totaling nearly $600 million;not only performed poorly but added debt that crippled the company during the recession.
Revenue and EBITDA plummeted, with EBITDA declining to as low as $14.5 million in 2002, and $25.5 million the following year. The company, which had spun out of Pittway Corp. in 1998 to be one of the few publicly traded b-to-b media companies, was de-listed by the New York Stock Exchange in 2003. Last year, it generated $192.8 million in sales and produced EBITDA of $41 million.
But Penton CEO David Nussbaum has dramatically reduced costs in the last two years, and the company;which is more than 100 years old;has several extremely powerful magazine brands, a number of very successful shows and a fast-growing e-media business. The company also enjoyed a strong first half of 2006, generating revenue of $102 million, up by nearly 5 percent from the prior year. First-half EBITDA was $25.4 million, up from $22.3 million in 2005, and putting the company within striking distance of EBITDA of $50 million for the year. If the company sells for $500 million on EBITDA of $50 million, then the transaction multiple is a very attainable 10-times EBITDA.
Says one source, "It was remarkably fortuitous for them to come in with a strong second quarter in the middle of a sale process."
However, at least one observer said the first round process was bumpy, with Penton and owner ABRY Partners not providing enough information. "In the second round, they are going to need to provide a lot more information," the source said. "The offering memorandum was less than adequate."
At least two other factors make the bullish outlook now even more remarkable. First, although this has been a busy year for magazine mergers and acquisitions, it’s also true that recently several high-profile companies did not sell;including Endurance Business Media, CurtCo, and Cygnus Business Media, which like Penton is owned by the Boston-based private-equity firm ABRY Partners.
The other factor is that as a public company, Penton’s common shareholders must approve any transaction. As part of Penton’s announcement in July that it had retained Credit Suisse Securities to explore "strategic alternatives," the company stated in a financial filing that its preferred shareholders agreed on a plan to share the proceeds of a sale with the common shareholders, who have what’s known in Wall Street circles as "holdup value";the ability to block a deal.
Under the plan, the allocation arrangement kicks in if the net proceeds of a sale exceed $105 million. The company owes $317 million in debt, and would have to pay somewhere close to $10 million in transaction fees, so the sale of Penton would have to generate at least $427 million for the agreement to take effect.
The allocation plan, which apparently needs the approval of the common shareholders, provides them;the common shareholders;with 12.75 percent of the first $135 million of net proceeds (with a minimum allocation to the common stock of at least $14 million), 15 percent of any additional net proceeds up to $145 million, 25 percent of any additional net proceeds up to $185 million and 20 percent of any additional net proceeds over $185 million.
In short, the common shareholders would get $14 million, or 41 cents per share, for a transaction that produces net proceeds of $135 million (a sale price of around $470 million) and $28 million, or 83 cents per share, if the net proceeds are $185 million (or a total sale price of about $515 million). Penton has 34 million shares of common stock outstanding. It closed Tuesday at 56 cents on trading volume of 130,000 shares.