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Deal between Lebhar-Friedman and Penton shows the impact of debt

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Last week Lebhar-Friedman Inc. sold its flagship title, Nation's Restaurant News, to Penton Media in an all-cash deal. The price tag for the acquisition was not disclosed.

The two parties to this deal have much in common. Both are in different stages of grappling with debt that had pinned them down in the recession and left them unable to pursue growth strategies. Now, both companies appear to be on their way to escaping debt's hold and are attempting to build strong and deep positions in narrow markets.

Penton emerged earlier this year from a prepackaged Chapter 11 bankruptcy reorganization that cut $270 million from its debt. “Ever since we came out of our restructuring, our focus has been on being much more aggressive,” Penton CEO Sharon Rowlands said. “Our board gave us a mandate. They said they want growth.”

Penton is pursuing growth organically through investment in its marketing services offerings and digital properties. Rowlands said the company increased its digital revenue by about 20% this year.

Additionally, Penton hopes to make further acquisitions in digital, events and data. “We are certainly very active (in looking at deals),” Rowlands said.

The acquisition of NRN bolsters Penton's position in the restaurant and foodservice market, especially with Reed Business Information's closure earlier this year of Restaurants & Institutions, which had been NRN's chief competitor.

As part of the deal, NRN Publisher Randall Friedman will join Penton and become the market leader of the company's restaurant group, which will also include Restaurant Hospitality and Food Management. “Being part of a larger company with the internal resources to handle our growth is critical to our future,” Friedman said in a statement.

Penton wrestled with its debt problems via Chapter 11 and restructuring the amount it owes. Lebhar-Friedman did not pursue this course of action, because in its case “the value of the assets far exceeded the debt,” according to an industry observer who asked not to be identified. Although the recession and decline in print ad pages had hurt Lebhar-Friedman's bottom line and placed it in violation of loan covenants, the properties it owned still had value.

To pay off the debt that Lebhar-Friedman had taken on in 2005 for its $40 million acquisition of Dowden Health Media, the company was pressured by its banker, GE Capital, to sell off properties. Lebhar-Friedman made a few deals to cut into the debt—including the sale of Dowden Professional Properties to Quadrant HealthCom last year—but it wasn't enough.

In the end, Lebhar-Friedman President Roger Friedman was forced to sell NRN, a property he had created in 1967 and which had become the clear leader in the foodservice sector. “It's a tragedy,” said a former employee who spoke on condition of anonymity.

“It's like ‘Sophie's Choice,'” said an industry observer. “They had to give up NRN to get GE to go away.”

With the anticipated sale of the remainder of Dowden Health Media, a deal that is expected to close as early as today, Lebhar-Friedman is now free of the shackles that its debt had placed on its ability to invest in its businesses, industry observers say.

Lebhar-Friedman still owns Chain Store Age and Drug Store News. And the company plans to focus on growing the business around them.

In a memo to Lebhar-Friedman employees last week, Friedman wrote, “Your company is positioning itself to be a financially sound and strong company with the resources available to grow our remaining products in the markets they serve. This is particularly true in the digital areas.”

"I assume selling Nation's Restaurant News is going to help pay off most, if not all, of the debt to GE Capital, while it will enable him to move forward and grow his company," said Mike Parker, managing director at AdMedia Partners.

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