The Ones That Got Away
This issue of Folio: is our traditional “Top Deals” review. We explore all the major deals of the prior year and the dynamics behind them. We offer a list of all deal activity for the whole period. We look at who’s buying and why, and which sectors are hot and which are not.That all starts on page 28.
What I want to do here is take a look at the deals that didn’t happen, and explore how they reflect on the market. Here are three:
Cygnus Business Media. This b-to-b publisher, owned by equity-firm ABRY Partners, was acquired in 2000 for $275 million, a rich price for a company that had revenue of about $81 million the year it was acquired. Six years later, when it was put on the block again, the company’s revenue had risen to $120 million, with enviable profit margins. But it didn’t sell. Why? Because even with high margins, the company was apparently not growing organically at a fast-enough pace. And there was a sense ABRY might not be able to get its money back because much of the revenue growth had come from a series of follow-on acquisitions. The lesson: High margins are not enough to ensure a transaction.
CurtCo Robb Report. The colorful entrepreneur Bill Curtis put his $100 million company ($20 million in EBITDA) on the block in flamboyant fashion, through a prominent article in the New York Times, and he tried to set price expectations by predicting the company would command $500 million. It didn’t work. The feedback from the market was that the company might get half that. Ultimately, Curtco was taken off the block. The lesson: Even highly desirable, consistent-growth companies need to play by the rules of economics.
Ziff Davis. This company is officially still on the block. But since rumors began to crop up last May that Willis, Stein & Partners was looking to sell the company it paid $780 million for in 2000, there was a countervailing sense that nothing much was happening. More recently, there was talk that the company would be sold in parts (it’s divided into three operating entities) and that Quadrangle was interested in the technology group. Last (unofficial) word on that, though, was that Quadrangle had lost interest, supposedly because Ziff was projected to finish the year poorly. The lesson: It’s a tough task to sell a company with $360 million in debt, with zero chance of recouping what was paid for it seven years ago, and that has been declining in revenue. Ziff generated $187 million in 2005, down from $204 million in 2004. Its 2006 numbers have not been released yet.
Sometimes, the deals that don’t happen say as much about the business as those that do.