Advanstar Inc.'s private equity owner has put the b-to-b media company on the block.
In an April 27 announcement, Boston-based Advanstar confirmed that Hellman & Friedman, which bought the company for $177 million in 1996, was exploring "strategic alternatives," including a sale.
The move did not surprise industry observers, who said San Francisco-based Hellman & Friedman, a financial player, bought the company for the sole purpose of creating a business it could sell for a profit.
"This is consistent with their initial intent," said Robert Crosland, managing director of AdMedia Partners Inc., New York. "They've been looking for the most beneficial exit strategy for about a year."
Last year, Advanstar, whose key holdings include Travel Agent magazine and the MAGIC International trade shows, filed for an initial public offering, before eventually abandoning the plan. The company also attempted to peddle some of its properties recently but then decided against the move, according to a person familiar with the situation.
In recent years financial players like Hellman & Friedman have become increasingly common in b-to-b media and have placed big bets on the industry. Lured by ample cash flow and, of course, the promise of the Internet, more financial players are eyeing the industry than ever.
"Today I can name 35 financial players looking at publishing companies, primarily in business-to-business," said Reed Phillips, managing partner of DeSilva & Phillips, New York, a media investment banking firm. "Seven years ago, I would have been hard-pressed to name five that were really serious."
Observers calculate that Advanstar could fetch $800 million or more in a sale. Speculation about potential suitors has centered on Cahners Business Information, VNU Business Information, Hearst Corp., and Penton Media Inc. Others speculate that financial players will be interested.
Any sale of Advanstar will likely be the biggest non-tech b-to-b media deal since Cahners' $447 million acquisition of Chilton Business Group in 1997. Financial players will closely watch the outcome, which will allow them to gauge the state of investment in b-to-b media.
"It will certainly be an important indicator for companies like Cygnus [Business Media, which is owned by New York-based financial player Kelso & Co.] and others that at some point in the future will be looking for their own exit strategies," Crosland said.
Chances for sale
Some observers say that a successful sale of Advanstar is likely. They argue that even with Miller Freeman Inc., San Francisco, also on the market, there is too much demand for large b-to-b media properties and too little supply. In the current economy, private equity firms teem with cash and need somewhere to invest it.
B-to-b media have proven to be a popular place for investment, and private equity firms own some of the biggest and most respected brand names in the industry:
Willis Stein & Partners, a Chicago-based private equity firm, acquired Ziff Davis Media Inc. for $780 million from Softbank Corp. earlier this year. The deal didn't include online portal ZDNet. In 1996, Tokyo-based Softbank bought Ziff-Davis for $2.1 billion from another financial player, Forstmann-Little, which bought the publisher two years earlier for $1.4 billion.
Hanley-Wood, the Washington-based publisher of construction industry magazines, was bought last year by Veronis, Suhler & Associates, N.Y. The purchase was the first by the company's third private equity fund, which had $1 billion at its disposal. The star of Veronis, Suhler's second fund is Chemical Week Associates, which recently bought Chemical Engineering from The McGraw-Hill Cos.
Primedia Inc.'s precursor, K-III, was established by majority owner Kohlberg, Kravis, Roberts in 1989. Kohlberg, Kravis also acquired Primedia's b-to-b arm, Intertec Publishing, the same year.
The Wasserstein Perella Group, a New York-based private equity firm, owns American Lawyer Media, which includes The American Lawyer and National Law Journal.
Several former Dow Jones & Co. titles, including Investment Advisor, were sold to Wicks Business Information in January. Wicks is owned by private equity investor the Wicks Group of Cos., New York, which has a$300 million fund dedicated to the company.
Several factors have led financial players to invest in b-to-b media. One key is that b-to-b media provide high margins. Those with more than $25 million in revenue posted average margins of 35% for trade shows and 22% for trade publications in 1999, according to a study conducted by Jordan, Edmiston.
B-to-b media, especially trade shows, provide tremendous cash flow, said Advanstar Chairman-CEO Robert Krakoff. With the cash and the assumption of debt, financial players can execute what's known as a "roll-up," making acquisitions in targeted markets and creating economies of scale.
A current example of the roll-up strategy is 101Communications, Chatsworth, Calif. Founded in 1998 with the backing of Frontenac Co., a Chicago-based private equity firm, 101Communications has acquired a group of smaller, niche technology publications and trade shows. In the process, it has amassed enough properties to become the fourth-largest tech publishing company, trailing only Ziff Davis, International Data Group and Miller Freeman's CMP Media.
But the key to understanding private investor interest in b-to-b media may be the rise of brand extensions. Since being pummeled by the 1991 recession, b-to-b publishers have become obsessed with creating diversified revenue streams.
The Internet and its potential for brand extensions on the Web, including e-commerce possibilities, have only served to make b-to-b media more attractive. "Everybody realizes that b-to-b publishing is a great platform for the Internet and e-commerce," Phillips said.
Looking for 'value event'
Once they begin assembling a b-to-b media company, financial players work on an exit strategy, which is what Hellman & Friedman is currently pursuing with Advanstar. The private equity firm is looking for what's known in the industry as a "value event," that is, the sale of the company.
Last year, it had pursued a different form of value event: taking Advanstar public. That tactic, however, was scrapped when b-to-b media companies such as Penton were not highly valued by the public markets. So Hellman & Friedman now hopes to provide a return for its investors by selling Advanstar to either another financial player or to a strategic buyer.
Any potential buyer will see Advanstar as a company built by acquisition. Since 1996, it has completed 26 acquisitions and joint ventures. The largest deals were the $234.3 million spent for the MAGIC trade shows and the $135.4 million spent on the Larkin Group.
Advanstar's 1999 revenues increased to $328.4 million, from $259.8 million. Its 1999 net loss narrowed to $2 million, compared with 1998's net loss of $28.4 million. Advanstar also increased its EBIDTA (earnings before interest, depreciation, taxes and amortization) to $78.5 million in 1999 from $53.8 million in 1998.
Advanstar's trade show business, which taken alone would make it the third-largest trade show operator in the U.S., provides a strong cash flow, which is attractive to financial buyers. Additionally, Advanstar's deal with PurchasePro to build 20 vertical online communities has provided the company with "a very good [Internet] story," Phillips said.
Despite these positives, a profitable sale for Hellman & Friedman is by no means a lock, said some industry observers, who knocked Advanstar for its paucity of leading titles in its market clusters.
Even with the current attractiveness of the b-to-b market, "value events" are not guaranteed. MC Partners, for instance, placed Adams Business Media on the market last year and has failed to find a buyer.