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Penton sells properties, but M&As still sluggish

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In the closing weeks of 2002, Penton Media Inc. made a flurry deals, selling off a number of non-core properties, including:

•Boardwatch magazine and related properties to Light Reading.

•ISPcon Events to the Golden Group.

•Streaming Media to Information Today Inc.

•A/E/C Systems trade shows to Hanley-Wood L.L.C.

After a dismal year for mergers and acquisitions in the b-to-b media sector, Penton’s frenzy of selling raised the question of whether the moribund M&A market had re-awakened.

It hasn’t—at least not yet, according to several industry observers. They said the sales were a result of Penton’s struggles over the past year. The company’s share price closed at 77 cents on Jan. 3. If its stock price does not climb above $1, the company faces delisting by the New York Stock Exchange.

"What [the bevy of deals] signifies is that these guys need money," said Robert Crosland, managing director at AdMedia Partners Inc. "I think it’s prudent that [Penton is] seeking to raise some cash by selling non-strategic assets, because there’s no telling how strong 2003 is going to be."

But while Penton’s divestments may not in themselves signal renewed vigor in the M&A market for b-to-b media, most industry observers believe that activity will rebound, if slightly, in the coming year. "It can’t get any worse," Crosland said.

The number of M&A deals involving b-to-b magazines tumbled to 27 in 2002 from 52 in 2001, a decline of 48.1%, according to the Jordan, Edmiston Group Inc.

The value of b-to-b magazine deals fell even more precipitously, dropping to $329 million in 2002 from $2.2 billion the previous year, a decline of nearly 84.9%. Similarly, Jordan, Edmiston found that the number of M&A deals in conferences and trade shows fell from 49 in 2001 to 28 in 2002, a decline of 42.9%. The value of these deals plummeted 75.1% in the same period, dropping to $144 million from $578 million.

A report by DeSilva & Phillips Inc. did not have a single b-to-b media deal in its list of top 20 media deals of 2002.

Ad slump to blame

The decline in deals and their value is blamed, in part, on the ad slump in the b-to-b media industry, which depressed prices for media properties and convinced many of those hoping to sell to wait until prices stabilized. Additionally, the lack of available credit limited the ability of private equity firms interested in b-to-b media to secure funding for leveraged deals.

Most observers expect these conditions to change in 2003.

"A new convergence between buyer and seller expectations and a loosening of bank lending requirements will spur more deals, even if the economy doesn’t mount a strong recovery," said AdMedia President Robert Garrett. He added, "Sellers no longer expect the inflated prices of the late ‘90s, and buyers are willing to pay a little more to get value."

Roland DeSilva, managing partner of DeSilva & Phillips, agreed. Sellers "can get an acceptable—not a market-blowing—price," he said.

Garrett is confident that bank lending requirements will be relaxed in the coming months, which should spur M&A activity in b-to-b magazines. "There’s a glut of private-equity money looking for deals," he said.

DeSilva pointed out that the b-to-b media M&A market tends to lag a year or so behind the consumer media market. Consumer deals, such as Reader’s Digest Association Inc.’s acquisition of Reiman Publications L.L.C., began to pick up in 2002.

"It’s not going to be a huge, robust market [for b-to-b media deals]," DeSilva said, "but it will be an improvement over last year."

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