Primedia announced Monday that it has agreed to sell its business information unit to PBI Media Holdings, which is controlled by Wasserstein & Co., for $385 million. The deal is expected to close in the fourth quarter.
Industry observers were mildly surprised by both the buyer and the price. Insiders said that up until about a week ago, it appeared that Apprise Media, a company run by Chairman-CEO Charles McCurdy (formerly interim CEO of Primedia) and backed by Spectrum Equity Investors, had won the auction for Primedia’s business information unit, which includes 70 publications, more than 100 Web sites, 25 events and 50 directories and data products.
But PBI Media made a bid that observers said was “significantly” higher than other offers and was more to the liking of Kohlberg Kravis Roberts & Co., the leveraged buyout firm that owns the controlling stake in Primedia.
The EBITDA (earnings before interest, taxes, depreciation and amortization) multiple is hard to calculate for the Primedia Business deal. In 2004, Primedia Business reported EBITDA of $37.4 million, but that figure included the Ward’s Automotive properties, which were not part of this transaction.
Primedia said the price of $385 million would place the trailing EBITDA multiple at 10.6 times. That figure is low compared with the multiples reportedly received in the deals for Hanley Wood and Canon Communications earlier this year. Industry observers anticipate that Primedia Business’ EBITDA for the full year 2005 will be more than $40 million. That figure would make the EBITDA multiple below 10 times.
But even that multiple was too high a price considering the performance of the properties over the past several years, according to one observer who spoke on condition of anonymity. “They paid an extraordinarily high price for assets that were judged by others to be nowhere near as valuable,” this observer said.
But another observer, Roland DeSilva, managing partner at media investment bank DeSilva & Phillips, said, “They bought a set of assets that have a lot of good, well-positioned properties. I’m sure they’ll be able to bring a different view to the properties and handle them without some of the obvious financial distractions that Primedia has had over the past couple of years.”
Insiders said they were excited at the prospect of Wasserstein & Co. owning Primedia. One current employee said, “The troops are happy; it’s a huge relief.” Wasserstein & Co., which owns such respected media properties as The Deal LLC, ALM and New York Magazine (another property it bought from Primedia), has a reputation for investing in editorial.
Industry observers said that they expected Wasserstein & Co. to invest in the online presence of its new properties. “With the continuing slide in print ad pages, I think they must turn to growth online,” said Joel Novak, managing director of media investment bank Berkery, Noyes & Co.
Rob Garrett, president of AdMedia Partners, agreed. “I would try to expand my channels of delivery in every way I could, and I would also hope that the economy helps me as well,” he said.
Garrett said the Primedia properties, many of which have been damaged by the economy, have potential. “I think if you wanted to buy a pure b-to-b company with highly differentiated properties, you’re not going to find a better one around than this one,” he said.
Without its business information unit, Primedia is now a strictly consumer publishing company with divisions focusing on enthusiast publishing, consumer guides and education. “This transaction not only allows us to realize the value of this turnaround (at Primedia Business), but also to increase our focus on the segments of our business, particularly enthusiast media and consumer guides, that can be superior sources of long-term value creation,” Kelly Conlin, Primedia’s president-CEO, said in a statement. The question now: Will KKR, which has owned Primedia for nearly two decades—an extraordinarily long time for a leveraged buyout firm—continue to operate these properties, or will the firm continue to sell off the company in pieces while the mergers and acquisition market remains strong?