Advanstar Communications announced April 4 a surprising $185 million deal to sell several of its smaller market clusters to Questex Media Group. Observers disagree on whether the deal signaled a new strategy for Advanstar or the first steps in an exit strategy for the company's private equity owner, DLJ Merchant Banking Partners III, a fund managed by Credit Suisse First Boston Private Equity.
"This was a general housekeeping transaction," said Robert Crosland, managing director of media investment bank AdMedia Partners.
Another source, who requested anonymity, said the deal was a clear sign that CSFB was preparing to sell all of Advanstar. "This was to lower the debt and clean up the company to have a better chance at selling it," the source said.
Advanstar agreed to sell its Advanstar's Information Technology & Communications, Travel & Hospitality, Beauty, Home Entertainment, Abilities and Portfolio groups to Questex. Those groups together generated about $100 million in revenue in 2004.
Questex is a new company formed by private equity company Audax Group and Kerry Gumas, VP-general manager of Advanstar's information technology and communications group. Gumas will be president-CEO of Questex.
Advanstar said it would use the proceeds for debt reduction as well as the funding of organic growth and potential acquisitions. The company retained what most industry observers consider to be its strongest media clusters-fashion, health care, science and pharmaceutical-which generated about $275 million in revenue last year.
Joseph Loggia, Advanstar's CEO, said the two separate companies will be more nimble and better able to implement innovations. "This is a strategy we've been working on in the past year."
Loggia said Advanstar is looking to remake what a b-to-b media company is. He said the company has requested new business suggestions from employees and that ideas have flooded in. One reason to divide Advanstar in two was simply to provide enough resources-money, people and time-to execute new projects properly.
Loggia also said each of Advanstar's market groups has examined what he called "the marketing supply chain" in its sector. The result has been a clearer vision of how marketers in the segment communicate with their customers and prospects. He said that understanding how Advanstar's customers go to market means the company is no longer tied to creating just trade publications, conferences and Web sites.
He pointed to Advanstar's creation of DIRTsports-a consumer magazine that off-road vehicle dealers said was needed in the market-as an example of how the company was responding to customer needs in new ways. The magazine made its debut on newsstands in April.
Some observers, however, speculated that the sale to Questex is not about strengthening Advanstar for the long term but readying it for sale in the short term. Some read the sale as the beginning of CSFB, which acquired Advanstar in 2000, executing its exit strategy.
By making itself a smaller company, Advanstar has made an initial public offering an unlikely exit strategy in the short term, observers said. Additionally, because private equity funds usually try to exit within a seven-year period, some observers expect subsequent divestment of Advanstar properties in the next two years.
Advanstar's sale to Questex adds fuel to the merger and acquisition fire in b-to-b media. The number of acquisitions in the magazine/trade show field increased 21% to 17 in the first quarter, from 14 in the same period last year, according to M&A advisory company Whitestone Communications. The dollar value of these deals increased by 104% to $486 million.