After four years of aggressive steps forward, mainly through acquisitions, Westport, Conn.-based Cygnus Business Media appeared to take two small steps backward recently.
In August the company, which publishes Firehouse magazine, announced it was closing four regional printing publications-Southern Graphics, Printing Journal, Print & Graphics and Printing Views-although it left open the possibility that it may publish them again if the market recovers. Earlier this summer, Cygnus sold three agriculture properties-Farm Equipment magazine, Farm Catalog and the "Ag Industry Watch" newsletter-to Lessiter Publications.
The b-to-b media community is divided on what these moves mean for Cygnus. Some see these developments as the natural pruning of a portfolio and no cause for alarm. Others view them as early signs of trouble for the roll-up, which is backed by private equity firm ABRY Partners, which purchased it for $275 million in 2000.
"These are non-events," said Roland DeSilva, managing partner of media investment bank DeSilva & Phillips. "Cygnus is just making appropriate adjustments to its portfolio."
"I think it's more than that," said another industry observer who declined to be identified. "They've bought flotsam and jetsam, though they've bought it cheaply. But it's still flotsam and jetsam even if you buy it cheaply."
Paul Mackler, chairman-CEO of Cygnus Business Media, disagreed, making a strong case for his company's health. He explained that the agriculture properties and the regional printing publications represented a small fraction of Cygnus' revenues. They served shrinking markets, and taking action was simply the prudent thing to do, he said.
The former Reed Exhibition Cos. executive also pointed out that none of these properties were acquired on his watch. Since he took charge of Cygnus, at the time of its acquistion by ABRY, the company has increased its number of magazines from 48 to 65 and its trade shows from 17 to 52.
"Cygnus is very careful in what they buy," said Adam Gross, VP of media investment bank the Jordan, Edmiston Group.
Mackler said that since 1999, Cygnus' revenues have achieved a 7% compound annual growth rate. More important, he said that since he took over, Cygnus has achieved 60% growth in earnings before interest, taxes, depreciation and amortization.
Lastly, Mackler said that GE Commercial Finance Communications & Media's arranging a $220 million debt credit facility for Cygnus in July displayed tremendous confidence in the company. "The financing illustrates GE's recognition of Cygnus' superior fundamentals as well as strong operating results," said Peggy Koenig of ABRY Partners in the press release announcing the deal.
Gerry Hogan, who was part of the group that sold Cygnus to ABRY Partners, found no fault with either Mackler's sale of the ag properties or the shuttering of the regional print publications. Hogan said that the farm unit was struggling when he controlled Cygnus and that the printing industry is contracting. "My sense is, if I were them, I'd be doing what they're doing," Hogan said.
Some industry observers say that Cygnus' emphasis on small brands runs counter to b-to-b marketers' current affection for leading brands. "With Firehouse, they do have some good stuff," said Robert Crosland, managing director of media investment bank AdMedia Partners. "They also have a lot of stuff we would call `other.' "
Another intrinsic problem is that ABRY Partners may have a difficult time executing an exit strategy-either selling Cygnus or taking the company public-in an era when advertising-based businesses are not as coveted as they once were. "The strategic players have pulled back from advertising-driven products," Crosland said.