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Advanstar positioned for rebound

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With Advanstar Communications Inc.’s shrinking revenues and widening net loss in 2002, it’s easy to lump the company with other business media operations that are threatened with delisting from a stock exchange or have scrambled to avoid bankruptcy.

But industry observers say Cleveland-based Advanstar, publisher of Travel Agent and the producer of the MAGIC International apparel trade shows, is well-positioned to emerge from this punishing b-to-b recession, thanks to strong management, steadily improving editorial and fortuitous positions in healthy markets.

"This is about as good as it gets," Roland DeSilva, managing partner of media banker DeSilva & Phillips Inc., said of Advanstar’s management team, particularly Chairman-CEO Robert Krakoff and Vice Chairman Jim Alic.

"I don’t know whether it was luck or brains or both," Krakoff said of his company’s relatively healthy position.

Industry observers say that Krakoff’s experience—he is the former CEO of Cahners, now known as Reed Business Information—prepared him well for dealing with the impact of the current downturn.

Advanstar reacted faster than most business media companies to cut costs, chopping 286 jobs since January 2001.

Editorial gets stronger

Cuts at media companies always make b-to-b marketers and agency media directors nervous, concerned that editorial quality and sales service may suffer. Despite Advanstar’s cuts, however, the case can be made that the publisher has boosted its editorial strength in recent years. Two of the company’s magazines, Pharmaceutical Executive and Ophthalmology Times, won Jesse H. Neal Awards from the American Business Media in 2002.

Advanstar’s sales staff seems prepared to negotiate. While the company’s ad pages shrunk 2.2% in 2002 compared with 2001, its revenue per page declined even more, falling 6.6%. The decline in revenue per page contributed to Advanstar’s overall 11.5% drop in revenue in 2002, to $307.2 million from $347.0 million in 2001. Last year, the publisher reported a net loss of $124.3 million, including a $66.8 million non-cash goodwill impairment write-down, compared with a net loss of $49.8 million in 2001.

But industry observers say the real condition of Advanstar is seen in its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). The number declined to $81.3 million in 2002, from $90.2 million in 2001. The 2002 adjusted EBITDA figure excludes a one-time charge of $37.2 million that Advanstar took against its affiliated Internet company.

"There were a lot of companies that had about $100 million in EBITDA in 2000, but there aren’t many that have kept EBITDA in that range," said Robert Crosland, managing director of media banker AdMedia Partners Inc.

Crosland said that Advanstar’s relatively healthy performance stems from its diversification, as well as from its presence in economically strong industries. Its fashion properties, Krakoff said, have continued to perform reasonably well. The terrorist attacks of Sept. 11, 2001, curtailed attendance at Advanstar’s February 2002 MAGIC events, but traffic at the August MAGIC events "increased significantly over the spring events," according to the company.

"The secret to Advanstar’s success, I think, has been managing risk," Crosland said. "They’ve managed their product mix very prudently, particularly when you take into consideration that they were building the company during a period of time that was marked by excess."

Advanstar has completed 35 acquisitions and joint ventures since May 31, 1996. The pace has slowed in the past few years because of the depressed mergers and acquisitions market.

Richard Mead, managing director of media banker Jordan, Edmiston Group Inc., said Advanstar will have to acquire aggressively over the next couple of years to provide an adequate return on investment to its backer, CSFB Merchant Banking Partners, which bought the company for $900 million in 2000.

Call for more deals

"In order to kick-start growth in the value of the business, they have to make some serious acquisitions, significant acquisitions," Mead said. He expressed puzzlement as to why Advanstar has been less than aggressive in acquisitions. "They have a strong enough management team to be making acquisitions that are not quite perfect," Mead said.

Krakoff disputed the assertion that acquisitions are a necessity, saying Advanstar will build value in two ways: by paying down its long-term debt of $555.7 million and by boosting earnings.

"We don’t have to do it [make acquisitions] at all for this company to have a higher value in two years," he said. "It doesn’t mean we won’t do it, but it doesn’t mean we have to do it."

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