On Monday, Primedia Inc. officially announced what many had long anticipated: Primedia Business Magazines & Media is on the block.
Primedia has hired Credit Suisse First Boston to explore the sale of the business information unit, which includes 70 publications, more than 100 Web sites, 25 events and 50 directory and data products. Its key properties include Ward’s Auto World, Telephony and Registered Rep.
The business media industry has for many years been expecting Kohlberg Kravis & Roberts & Co., Primedia’s owner, to look for a buyer for the unit. After all, the famed leveraged buyout firm has owned the business for a decade and a half, which in private equity years is the equivalent of an eon.
After the forced resignation of chairman-CEO Tom Rogers two years ago, rumors flew fast and furious that Primedia Business would be put up for sale. Now, however, the pace of the merger and acquisition market in b-to-b media has made the time right to sell the unit, industry observers say.
"It all boils down to economics," said Robert Crosland, managing director at AdMedia Partners. "This investment is long overdue for a liquidity event."
Robert L. Krakoff, former chairman of Advanstar Communications, said: "It’s not a very surprising announcement. They see the activity going on in the b-to-b space. It’s not hard to come to the conclusion that it’s time to put a fishing line in the water and see what you get."
What Primedia may get, industry observers say, is Krakoff, who has joined with private equity firm the Blackstone Group to form Blantyre Partners. "We would consider it," he said.
Industry observers speculate Ascend Media—whose president-CEO, Cameron Bishop, once ran Primedia Business—may also become a bidder. Ascend Media is backed by JP Morgan Partners. Bishop was noncommittal about his interest in Primedia but did allow that he would discuss the opportunity with his board.
Noting that Hanley Wood is said to be garnering great interest from bidders in its auction and that Canon Communications sold earlier in April for a very strong EBITDA multiple—believed to be in the low- to mid-double digits—Bishop said: "The deal flow speaks volumes about the viability of this business. Two or three years ago people were questioning if this was a business that was going to survive. I think this bodes well for the future. Kelly [Conlin, Primedia’s president-CEO] is reading the tea leaves right on the timing."
In a statement, Conlin explained the rationale for the potential sale: "Over the past year, the business information segment has turned around, with accelerating revenue and earnings growth. When these results attracted the attention of several qualified buyers, the company felt that our shareholders would be best served by evaluating these offers in the context of a competitive review of the value of our business information segment. This is consistent with our goal of focusing on both operating growth and financial deleveraging."
Primedia Business generated $224.8 million in revenue in 2004, up 1.5% from 2003. The unit’s EBITDA increased 6.6% to $37.4 million in the same time frame.
If the unit were to draw a 12-times multiple, the sale price would be $448.8 million, but few observers expect Primedia to draw a multiple that high, despite the current M&A climate. The unit has showed meager revenue growth, and many of the costs were stripped out during the deep b-to-b media recession that followed the dot-com bust, observers said. Moreover, the turmoil in the telecommunications sector has left Telephony a diminished property.
At the same time, many private equity players are waiting to get a piece of the b-to-b media industry and may be willing to pay a premium to get into the game. At Blantyre Partners, for instance, Krakoff may see an upside in adding trade shows to Primedia Business’ existing brands, observers said.
"It will likely be a financial player [that buys Primedia Business]," said Joel Novak, managing director at communications industry investment bank Berkery, Noyes & Co. "There will be a lot of disappointed buyers who were going after Hanley Wood. So in this environment, this is an attractive property that might get a 12-times multiple."
Potential buyers may also be interested in other Primedia businesses—its Apartment Guides or automotive enthusiast properties, for instance. Because the news of the business information unit being on the block followed Primedia’s sale of its About.com business to the New York Times Co., some industry observers have speculated that KKR is preparing to sell the remainder of Primedia. But, referring to Primedia’s other businesses, Elliot Sloane, president of Sloane & Co., Primedia’s public relations firm, asserted, "They’re not for sale."