Winners & Losers
Private equity money is dominating the magazine industry. In the first half of 2006, 41 of 73 media deals went to private equity buyers, according to DeSilva & Phillips. However, observers are divided on just how successful PE deals have been in recent years. “What’s remarkable is that interest has far outpaced returns and there are scant few success stories,” says one former operator. “Penton, Primedia, 101, Advanstar, F+W, Ziff, American Media, Northstar—all washups. For the new crop—Aspire, Ascend, Active Interest, it’s too soon to tell.”
It’s not just a case of markets going south or a few bad investments. “The mistakes are almost exactly the same in every case,” says the CEO of another strategic. “Once you overpay and overleverage, then you don’t have much choice but to underinvest. Then you’re in a death spiral.”
“That’s BS,” retorts one financial observer. “The vast majority of private-equity guys are making money, especially on the stuff over the last few years. The multiples are high and they’re using leverage to their advantage.”
Deciding who’s a winner and who’s not is a gray area. “Not all of them are winners,” concedes one financial player. “People were buying at the top of the market in 1999, then we hit a brutal recession—that’s a Cygnus situation. It’s hard to make private equity returns in that type of environment.”
ABRY Partners’ investments in Penton Media and Cygnus Business Media looked like losers post-recession compared to the investment pre-recession ($200 million for Cygnus, $50 million for Penton). However, with both companies on the block, there’s a chance ABRY could still recoup its investment. “We won’t know about Cygnus until they sell,” says one observer. “It won’t be a big winner but it could end up being respectable.”
FOLIO: assembled a list of recent private-equity deals and talked with several industry players about how they see them performing. The list is not comprehensive but gives a snapshot of how these deals are perceived by the market.
THE DEAL: Hanley Wood
BUYER: JP Morgan
DATE OF SALE: May 2005
PRICE: $650 million
The largest deal of 2005 and the second largest b-to-b transaction since 2000, JP Morgan’s $650 million purchase of Hanley Wood from Veronis Suhler Stevenson looks like a clear winner for all involved. JP Morgan takes over a company that generates more than $225 million in annual revenue and is coming off a five-year period in which it doubled in size from $100 million.
THE VERDICT: Winner.
THE DEAL: Canon Communications
BUYER: Apprise Media
DATE OF SALE: April 2005
PRICE: $270 million
Canon was the definitive acquisition for Apprise Media, which beat out several other competitors with deep pockets for the medical-chemical industry publisher. “A huge winner” says one observer. “It’s a very successful sale for VSS at that price,” says another.
THE VERDICT: Winner.
THE DEAL: Network Communications Inc.
BUYER: Citigroup Venture Capital Equity Partners
SELLER: Dan McCarthy
DATE: January 2005
PRICE: $380 million
Citigroup acquired a relatively recession-proof company that has nearly doubled revenue from $90 million in 2002 to more than $150 million. NCI is expanding beyond its flagship real estate properties to other lead generation markets including automotive, employment and boating. “Boring, but a winner,” says one observer.
THE VERDICT: Winner
THE DEAL: F+W Publications
BUYER: ABRY Partners
SELLER: Bill Reilly, Stephen Kent,
Providence Equity Partners
DATE: August 2005
PRICE: $500 million
Arguably the most troubled deal of the year, with ABRY Partners filing suit against Providence after the deal closed, alleging it overpaid based on misleading financials. In June 2006, ABRY settled the lawsuit and Bill Reilly joined the ABRY board. “Reilly made a killing on that despite all the BS, which is now settled,” says one observer.
THE VERDICT: Too early to tell but could end up being a surprise winner.
THE DEAL: 101communications
BUYER: Neal Vitale, 1105 Media
DATE: April 2006
PRICE: $70 million
Observers are split on how to look at 101. On one hand, CEO Jeff Klein and his team made a heroic effort to take a company that nearly went bankrupt during the tech crash of 2001 back to profitability and sell for a price said to be an eight-time multiple. For others, 101 still hasn’t recovered. “I wouldn’t be afraid to put 101 on the losers list,” says another.
THE VERDICT: Great comeback, not a home run.
THE DEAL: American Media Inc.
BUYER: Thomas H. Lee Partners, Evercore Capital
PRICE: Recapitzalized in ‘03 for $508 million
Despite a recent ad boost, American Media has put five more magazines on the block, including Muscle & Fitness. In 2003, Evercore and Thomas H. Lee invested $508 million to buy out AMI’s previous shareholders, earning Evercore a $100 million net gain on the deal. However, the company has dropped plans for an IPO. “They continue to be challenged like hell on how to make money,” says one observer. “The signs are not good here,” says another.
THE VERDICT: Troubled.
THE DEAL: World Publications
BUYER: Bonnier Magazine Group
SELLER: Boston Ventures
DATE: May 2006
Boston Ventures gave up its minority stake in World Publications and received a significant return. The company generated $90 million in revenue in 2005, with plans to break $100 million in 2006.
THE VERDICT: Winner.
THE DEAL: Northstar Travel Media
BUYER: Boston Ventures
SELLER: Cahners Businesss Information
Boston Ventures hasn’t been as fortunate in its investment in Northstar Travel Media, which has suffered from the consolidation and strategic shift in the travel industry away from actual travel agents. “It could be too early to tell but this is probably not a winner,” says one observer.
THE VERDICT: Too soon to tell.
THE DEAL: Advanstar Communications
BUYER: DLJ Merchant Banking
SELLER: Hellman & Friedman Capital
PRICE: $900 million
The $900 million sale of Advanstar still ranks as the largest b-to-b publishing deal ever. Six years later, DLJ is stuck after calling off a long sales process that began last July. DLJ was said to be seeking more than $1 billion for Advanstar, which carries hundreds of millions in debt. “Advanstar was a decent return for Hellman & Friedman but it clearly won’t be on the winner’s list for DLJ.”
THE VERDICT: Deal stimied by debt terms.
THE DEAL: Wicks Business Information
BUYER: The Wicks Group of Companies
DATE: Relaunched in early 2005
PRICE: $50 million in new investment.
Two years ago, the future looked bleak for Wicks Business Information. After a corporate sale fell through, the company dumped 60 percent of its business by selling Alternative Investor Service to Dow Jones for $85 million, its Briefings Publishing Group to Douglas Publications for $20 million and re-launched with an emphasis on the compliance and regulatory corporate finance category. “Wicks saw a nice return on the sale to Dow Jones.”
THE VERDICT: They aren’t out of the woods yet but WBI is looking like a surprise winner.