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Blockbuster deals have grabbed the attention of investors, creating the strongest business media M&A market in years
How good is the current mergers and acquisitions market in b-to-b media? One media investment banker was overheard recently declaring, “This is the best year of my life.”

The banker may have been exaggerating-but not by much. This year has brought many high-profile deals, including the second-biggest b-to-b media deal since 2000: Veronis Suhler Stevenson’s $650 million sale of construction industry media company Hanley Wood to an investment group headed by JPMorgan Partners. That deal was only topped by the $900 million acquisition of Advanstar Communications in 2000 by a private equity fund controlled by Credit Suisse First Boston.

Advanstar itself has been active in the M&A market this year. In April, CSFB sold several units of Advanstar, including its travel properties, for $185 million to Audax Group, another private equity player. The new business is called Questex Media Group.

In July, CSFB declared that it would explore the sale of the remaining portion of Advanstar as well. Two big questions surround this deal. First, will it, combined with the $185 million already paid for Questex, top what Advanstar fetched five years ago? And second, will Robert Krakoff, former chairman-CEO of Advanstar, who left the company in 2004, put together a deal to purchase the remaining assets? Krakoff is chairman-CEO of Blantyre Partners, which is backed by the Blackstone Group, a private equity firm.

Another high profile deal this year was Mansueto Venture’s $40 million acquisition of Inc. and Fast Company from Gruner & Jahr Publishing USA.

While the larger transactions have generally been fueled by private equity money, some strategic b-to-b publishers have also made deals in recent months. United Business Media, for instance, announced three deals valued at a total of $56.5 million within 24 hours in mid-August: acquisitions of Light Reading, TechOnLine and Informex. Penton Media has made some small deals this year, acquiring MSD2D (Microsoft Developer-to-Developer) a tech media company, in August and the Kosher World trade show in June.

From top to bottom, the action in the market has been robust, as the databases of media investment banks clearly show. B-to-b magazine deals increased by 44% to 28 in the first half compared with 18 in the first half of 2004, according to the Jordan, Edmiston Group transaction database. The value of the deals increased more than 50% to $1.7 billion, from $1.1 billion in last year’s first half.

By another accounting, magazine deal dollar volume increased to $2.2 billion on 23 transactions in the second quarter of 2005 compared with just $82 million on 15 deals in the second quarter of 2004, according to M&A firm Whitestone Communications.

The groundswell of deals has led to more deals, generating something of an M&A frenzy this summer. Observers point to Veronis Suhler Stevenson’s sale of Canon Communications to Apprise Media, a company backed by Spectrum Equity Investors and led by Chairman-CEO Charles McCurdy, as the event that indicated to potential sellers just how strong the market could be. The price was $200 million, a more than 12-times EBITDA multiple.

The sale of Canon, a medical publisher, put dollar signs in the eyes of media owners. Industry speculation said that deal and others, along with overtures from potential buyers, compelled Kohlberg, Kravis Roberts & Co., the leveraged buyout firm that controls Primedia, to place the company’s business information unit on the auction block in April.

Observers were skeptical of Primedia’s ability to get a favorable deal for the unit, which has some strong properties-including Telephony and Registered Rep-surrounded by many also-rans. One investment banker scoffed at the notion of Primedia getting a strong price. “Getting a double-digit multiple [for this property] is ridiculous,” the banker said.

However, perhaps as proof of the M&A market’s strength, Primedia said it received a 10.6-times multiple based on 2004 EBITDA for the business information unit. In August, the company agreed to sell the unit to PBI Media Holdings, which is controlled by Wasserstein & Co., for $385 million. The deal is expected to close in the fourth quarter.

The deal was close to the 11-times multiple that the group led by JPMorgan paid for Hanley Wood, according to some observers, although that analysis of the deal refers to anticipated 2005 EBITDA and includes a buyout that will push the multiple higher if certain earnings targets are met. On trailing EBITDA, the Hanley Wood deal was likely closer to a 14-times multiple.

Industry observers anticipate that Primedia Business’ EBITDA for the full year 2005 will be about $40 million. That figure would make the EBITDA multiple below 10 times .

But even that multiple was too high a price considering the performance of the properties over the past several years, according to one observer who spoke on condition of anonymity. “They paid an extraordinarily high price for assets that were judged by others to be nowhere near as valuable,” this observer said.

But another observer, Roland DeSilva, managing partner at media investment bank DeSilva & Phillips, said, “They bought a set of assets that have a lot of good, well-positioned properties. I’m sure they’ll be able to bring a different view to the properties and handle them without some of the obvious financial distractions that Primedia has had over the past couple of years.”

Insiders at Primedia said they were excited at the prospect of Wasserstein & Co. owning the properties. One current employee said, “The troops are happy; it’s a huge relief.” Wasserstein & Co., which owns such respected media properties as The Deal LLC, ALM and New York Magazine (another property it bought from Primedia), has a reputation for investing in editorial.

Strong M&A markets are difficult to explain. Industry observers, however, offer three explanations for the continued vitality of the market.

First, performance, certainly since the down years of 2001 and 2002, has improved. The publications that survived that wicked downturn tend to be leading properties, and ad page counts have stabilized in the industry as a whole. Perhaps more important, online revenue at b-to-b media companies is growing at a brisk pace, with many executives reporting 30% annual growth.

Observers are generally optimistic about the future, especially considering the growth of Internet marketing. “Growth will be driven in part by traditional publishers’ continued push to create new revenue streams through the Internet, as well as b-to-b media companies’ adoption of a more customized and consultative approach to selling advertising and trade show space,” according to Veronis Suhler Stevenson’s 19th Annual Communications Industry Forecast & Report, which was released in August.

Second, in part because of improved performance among b-to-b media companies, the senior debt market is strong. Banks are willing to loan money at record levels, often at seven-times EBITDA. This high level of available financing allows private equity funds to simultaneously invest less equity but pay higher prices.

“The current level of borrowing capacity by private equity firms is staggering,” said Rob Garrett, president of media investment bank AdMedia Partners.

Third, plenty of private equity funds are flush with cash they need to invest. Because of the combination of anticipated strong performance and available, inexpensive credit, private equity companies are flocking to b-to-b media.

And relatively small private equity funds such as those operated by Veronis Suhler Stevenson no longer have the b-to-b media M&A market to themselves. Larger firms like Blackstone, CSFB and JPMorgan Partners have also seen the value in b-to-b media.

“It’s an excellent market,” DeSilva said. “It’s fueled by very good senior debt availability, by ample private equity money, and b-to-b properties are highly valued in the financial world, and rightly so.”

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