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Jupitermedia banks future on stock images

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Alan Meckler, the man who sold Internet World to Penton Media in 1998, has developed a reputation for knowing when to sell.

So when Jupitermedia Corp., of which Meckler is chairman-CEO, announced last week a definitive agreement to sell its Search Engine Strategies (SES) trade shows, SearchEngineWatch.com Web site and ClickZ.com Network of Web sites to London-based Incisive Media for $43 million in cash, the conventional wisdom assumed Meckler made a good deal.

In a conference call last week, Meckler said the deal represented an EBITDA (earnings before interest, taxes, depreciation and amortization) multiple of 13.5 times, based on 2004 figures.

One observer, who spoke on condition of anonymity, expressed little doubt that the move would prove a wise one for Jupitermedia. "Alan Meckler has proved that he is very shrewd in choosing his time to sell," the observer said.

high-margin business

Incisive Media also seemed pleased with the deal. Tim Weller, the company's CEO, said in a statement: "SES has all the hallmarks we look for in our acquisitions: This is a high-margin business with robust core earnings, and it is a market leader in a strong and rapidly growing global market niche."

Jupitermedia still has a number of online media properties-including Internet.com and EarthWeb.com, which serve the information technology sector; DevX.com for software developers; and Graphics.com for creative professionals. But the move makes it clear that Meckler will focus the company's efforts on its growing stock image business.

"This sale is evidence of our intent to be even more aggressive in the licensing and distribution of commercial images," Meckler said in a statement. "The funds received from the sale will strengthen our balance sheet and allow us to have greater buying power for more image acquisitions."

Jupitermedia's JupiterImages division acquired PictureArts Corp. in July for about $63.2 million in cash. Meckler said Jupitermedia plans to use the cash generated from the Incisive Media deal to help pay down the $90 million credit facility Jupitermedia opened with J.P. Morgan Chase Bank in connection with the PictureArts deal.

Taking stock of acquisitions

The deal was Jupitermedia's seventh major acquisition since June 2003 in the stock images arena. Key acquisitions have included Comstock, Thinkstock and Hemera.

Online images accounted for 58% of Jupitermedia's revenue in the second quarter, according to the company's 10-Q recently filed with the Securities & Exchange Commission. In the same period last year, online images accounted for just 33% of the company's revenue.

The company posted revenue of $33.8 million in the second quarter compared with $17.8 million in the year-earlier period, a gain of 89%. Net income for the second quarter was $7.0 million, double the $3.5 million the company posted in the same period last year.

Meckler said the sale of Search Engine Strategies and the related properties should not be interpreted as a sign that he is losing faith in online media. He said he sold the units to Incisive Media reluctantly in order to finance more acquisitions in the online image business. And he pointed out that he kept other units, such as DevX.com.

Many observers believe the sale of the Jupitermedia properties is one more indication-even in the absence of news on some of the larger properties on the auction block, namely Primedia Business Magazines & Media and Advanstar Communications-that the mergers and acquisitions market in b-to-b media remains robust.

The number of b-to-b magazine deals increased by 44.4% in this year's first half to 26, according to a report by the Jordan, Edmiston Group, a media investment bank. (Jordan, Edmiston served as financial adviser to Jupitermedia in the deal with Incisive Media.) Led by JPMorgan Partners' $650 million acquisition of Hanley Wood, the value of first-half deals climbed 58.1% to $1.7 billion.

M&A activity in exhibitions and conferences showed similar robust growth as the number of deals increased 36.4% to 15, and the value of the deals rose 256.5% to $1.8 billion.

Primedia deal expected soon

In this hot marketplace, a deal for Primedia Business Magazines & Media, which includes Telephony and other publications, is expected soon. Credit Suisse First Boston is handling the sale for Kohlberg Kravis Roberts & Co., the leveraged buyout firm that is the primary owner of Primedia.

The two remaining bidders are said to be Spectrum Equity Investors, which backs Apprise Media, which is led by Chairman-CEO Charles McCurdy, and U.S. Equity Partners, which placed a late bid of $380 million to $390 million for Primedia's b-to-b unit, according to a report in The Daily Deal, a publication owned by U.S. Equity Partners.

Primedia Business posted EBITDA of $37.4 million in 2004, which would make U.S. Equity Partners' reported offer slightly more than a 10-times multiple. A Primedia spokesperson declined to comment on the report.

Last week, Primedia issued a press release discussing its second-quarter financial performance, but the release shed little light on either the performance of the company's business information unit or the status of the auction for it.

Primedia said detailed financial information on its business information group, now classified as "discontinued operations," will be included in its 10-Q filing with the Securities & Exchange Commission. The filing is expected to take place this week.

On the status of Primedia's attempt to sell the business information unit, the release said, "The company is actively pursuing the sale of business information segment with the exception of Ward's Automotive Group, which has been transferred to the enthusiast media segment. The operating results of the business information segment, excluding Ward's, have been classified as discontinued operations for all periods presented. There can be no assurance that any transaction will occur, or, if undertaken, the terms of timing of such a transaction."

CSFB is also handling the sale of Advanstar, a property that it owns through a private equity fund it operates. Observers say CSFB is still preparing the "black book" on Advanstar and will first work to sell Primedia Business before focusing its efforts on divesting Advanstar. M

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