Reed Elsevier has seen diminishing value in its trade publications since at least 2008, the first time it tried to sell the Reed Business Information portfolio. But it still came as a shock when the company shuttered 23 magazines—including such revered brands as Construction Equipment and Restaurants & Institutions—in a single day last month.
“I was astounded,” said Caroline Riby, VP-media director at Roberts Communications. “I guess I shouldn't have been surprised, but it was just so many titles to be closed at once.”
Ken Moyes, president of EH Publishing, however, saw value in the publications and quickly joined with former RBI Group Publisher Brian Ceraolo—now exec VP at Peerless Media—and the rest of the management team of RBI's supply chain group to acquire four of the closed magazine brands. Peerless, which will operate as a subsidiary of EH Publishing, closed on Thursday its deal to acquire Logistics Management, Material Handling Product News, Modern Materials Handling and Supply Chain Management Review. “The price is very attractive,” Moyes said.
But it was more than the deal that attracted Moyes. He sees a solid future in trade publishing—even in print—for entrepreneurial owners. In fact, many industry observers say that Reed Elsevier's decision to shut down those magazines says more about that company's corporate approach to trade publishing than it does about the strength of the shuttered brands.
Moyes isn't the only one looking to acquire RBI's cast-offs. On Friday, former RBI executives closed a deal to acquire Control Engineering, Consulting-Specifying Engineer and Plant Engineering. The new company is to be called CFE Media.
Additionally, sources said similar management deals were pending for Construction Equipment and for several former RBI building titles such as Professional Builder. “We now know that members of the Reed management team are interested in taking over some of the magazines in our market,” said Frank Anton, CEO of Hanley Wood, a building industry media company.
Reed Elsevier's announcement that it was closing the 23 titles—after it had sold a number of other brands such as Broadcasting & Cable, Interior Design and Publishers Weekly in seven separate deals handled by media investment bank Jordan, Edmiston Group—stunned the business media industry, particularly potential buyers, of which it seems there were dozens, according to industry sources.
What seems even more puzzling is that Reed Elsevier apparently never officially brought the shuttered titles to market. “We had spoken to [Jordan, Edmiston] several times during the sales process about our interest in looking at Reed's assets in the construction market. In every case, we were told Reed had not yet placed those properties on the market,” Anton said.
Executives at Jordan, Edmiston declined to comment for this story. Industry sources said RBI as a practical matter had to set a deadline for winding down the shared back-office services that supported the publications. Without these shared services, the publications could not operate.
With this deadline looming, Reed Elsevier conducted a sort of economic triage, selling first the titles that promised to yield the best return for shareholders. It said the properties that were sold accounted for two-thirds of the revenue of the portfolio it set out to divest.
“I think the process took so long that they just decided the [cash] burn on the back office was just too much,” said Hal Greenberg, partner at VSS Structured Capital Funds. “That's my guess.”
A Reed Elsevier spokesperson said, “It was always our preferred option to sell rather than close the titles.”
But how did it come to this? RBI was built around a concept hatched before the Internet changed the balance of power in b-to-b publishing. Back then, the business model focused on rolling up magazines in a number of unrelated markets and then cutting costs through back office efficiencies and gaining volume discounts from paper suppliers and printers.
In the Internet era, however, the winning media companies tend to be built on multimedia platforms that delve deeply into a single industry.
In the 1980s and '90s, RBI—which was then known as Cahners—had dominant publications in numerous markets. Over the past decade, narrowly focused companies, leveraging the Internet as well as events and data, have outperformed these once dominant brands.
For instance, Lebhar-Friedman's Nation's Restaurant News, which generated an estimated $22.2 million in print ad revenue in 2009, has overtaken Restaurants & Institutions, which took in $8.1 million, according to tabulations from IMS-The Auditor. Michael Bartlett, editor of Restaurants & Institutions from 1985 to 1996, said budget cuts from Reed Elsevier were the beginning of the end and caused employees to jump ship to Nation's Restaurant News. “As one of our former sales guys used to say, "R&I is alive and well at NRN,' ” Bartlett said.
Hanley Wood's Builder is another upstart that outperformed a former No. 1 publication from RBI. In 2009, Builder generated more than double the print ad revenue of Professional Builder, $13.3 million to $6.2 million.
RBI “never figured out they were competing with an integrated competitor that wasn't just selling ad pages,” Anton said. “We could and did offer customers everything from ad pages to data to trade show space to custom marketing, and we could and did package all of that media in a compelling way.”
A final example: Randall-Reilly's Equipment World logged an estimated $7.1 million in print ad revenue in 2009 compared with $6.2 million for Construction Equipment.
“I think they've lost their passion for business-to-business,” Randall-Reilly's CEO Mike Reilly said of Reed Elsevier's top management. “When you've lost your passion for the business, you need to get out. Our customers know our upper management team on a first-name basis. We call and sing them, "Happy Birthday.' It's just a different culture.”
If the former RBI management teams are successful in completing deals for their shuttered publications, they will look to build industry-focused companies—similar to the ones that broke up RBI in the first place. M