Media companies more wary about leverage

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With the return of more readily available financing, buyers in the b-to-b media mergers and acquisitions market now have more access to debt.

For those companies seeking leverage, there are several companies that serve as cautionary tales on the dangers of debt.

Penton made some ill-advised deals at the height of the dot-com frenzy. For example, it spent $274 million for Mecklermedia in 1998, but by 2001 that company’s key properties, Internet World and the affiliated trade shows, were struggling.

Although most observers say Penton has made significant strides, the bulk of its $12.1 million of EBITDA in the third quarter 2004 went to cover its interest payment for that quarter of $9.7 million.

Primedia was another company enamored of new technology and willing to go into debt to stake out a presence there. To shore up its balance sheet, the company has sold a number of high-profile consumer properties, such as Modern Bride.

After slashing staff and selling other properties, Primedia has strengthened its balance sheet. Its $60.0 million EBITDA in the third quarter offered some breathing room for the company’s $43.2 million in total interest payments, according to Primedia’s latest 10-Q filing.

Ziff Davis is another prominent b-to-b media company that was staggered by the tech wreck. Shortly after Willis Stein & Partners paid $780 million for it, Ziff Davis couldn’t meet its obligations to its bondholders. Behind CEO Robert Callahan, Ziff Davis forged a much-lauded agreement with those bondholders that kept it out of bankruptcy court. It also cut costs, focused on the Internet, and even made some small acquisitions in recent months. Still, even though it generated $6.5 million in EBITDA in the third quarter, it had $23.6 million in interest obligations for the period.

Some media executives today are taking a more cautious approach to leverage.

"I think leverage is just a philosophy," said Cameron Bishop, CEO of Ascend Media, which is backed by JPMorgan Partners and Veronis Suhler Stevenson. "Some people want to push it to the max; we don’t. We take a more conservative view of leverage. We are not and will not push it to the limit."

David Nussbaum, the current CEO of Penton, said buyers are now more grounded in the current performance of potential acquisitions—not pie-in-the-sky hopes of future performance. "You don’t buy high concept, and you don’t buy vision," he said. "Rather you buy a good solid business backed up by a proven strategy."

"I can’t say that I think people are going to turn away opportunities for leverage," said Reed Phillips, managing partner at media investment bank DeSilva & Phillips. "I think they will have that in the back of their minds. They may be a little bit more conservative, but not a lot more conservative."

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