After months of trying, CommerceConnect Media, backed by private equity firm Abry Partners L.L.C., finally is buying its way into the b-to-b media sector with its pending acquisition of Cygnus Business Media.
But some industry insiders said the $275 million price tag may have been too steep for the Cygnus stable of 48 trade publications, 16 trade shows and conferences, 17 custom publications and 60 Web sites.
"They paid a very, very, very full price," said Robert Crosland, managing director of AdMedia Partners Inc., a media investment bank.
Roland DeSilva, managing partner of DeSilva & Phillips Inc., the media investment bank representing CommerceConnect in the deal, disagreed. He said Cygnus, which expects to generate $96 million in revenues this year, is well-positioned for the continuing "convergence" of print, in person and online media.
"The company has solid management, very good infrastructure, and they have strong magazines in their franchise," DeSilva said.
Like many other business media operations, Cygnus is poised to move into e-commerce, particularly with the companion Web site to its Firehouse magazine, which covers the fire-fighting equipment industry. "Firehouse.com is about to embark on several e-commerce initiatives, and that is clearly the model we'll look at building," said Paul Mackler, CEO of CommerceConnect.
'Flipping' media properties
The sale of Cygnus, which was backed by private equity firm Kelso & Co., represents a burgeoning trend in b-to-b media: the "flipping" of properties from one financial player to another. In the past, financial players tended either to sell to large publishing operations or to take their holdings public. But now, more financial players want in.
"The fact is, there is a huge amount of money from pension funds and other private equity sources that needs a place to go," Crosland said.
Over the past several months, Abry Partners had been looking to ante up for a seat at the b-to-b media table. Late last year, the company placed the second highest bid in the auction for Hanley-Wood Inc., losing out to VS&A Communications Partners III, a fund created by investment banker Veronis, Suhler & Associates.
Peggy Koenig, a partner at Abry, said her company was attracted to the b-to-b media market by the strong return on investment. Between 1998 and 2003, advertising spending in business magazines will have a compound annual growth rate of 5.3%, according to projections by Veronis, Suhler.
Wanting in, CommerceConnect and Abry approached Cygnus. Gerry Hogan, Cygnus chairman-CEO, said the company was not for sale. When the suitor persisted, Hogan named his price, and that was the $275 million CommerceConnect and Abry paid.
The price was an EBITDA multiple of 11.5, meaning that it was 11.5 times the anticipated earnings before interest, taxes, depreciation and amortization of about $24 million in 2000. While some industry insiders saw that valuation as high, Koenig pointed out that Penton Media Inc. was trading at the time of the deal at a 12.6 multiple of its 1999 EBITDA.
Mackler said the deal for Cygnus, which will retain its name as well as its management team, with the exception of Hogan and president Blair Schmidt-Fellner, has a strong potential upside. Cygnus has licensed many e-commerce packages to begin building auctions and storefronts on its sites, Hogan said.
In addition, Mackler, as a former president of Reed Exhibition Cos., plans to build Cygnus' trade shows and conferences through launches and acquisitions.
"In our view, the price we paid is based on potential, and the price is totally justified," Koenig said.