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Winners and losers in Investcorp's acquisition of Thomson Media

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BY SEAN CALLAHAN

In the wake of Investcorp’s surprising announcement Friday that it won the auction for Thomson Corp.’s Thomson Media properties with a bid of $350 million in cash, the early analysis identified several winners and very few losers.

Industry observers agreed that Thomson Corp., which shed its second advertising-based business in a year after selling Medical Economics and related properties to Advanstar last fall, was a big winner. The company pulled Thomson Media and its properties—which include The Bond Buyer and American Banker—off the market two years ago when the bidding failed to meet its minimum price. With the winning bid of $350 million, Thomson’s patience may have added about $100 million to the selling price. "They look like geniuses right now," said one industry observer.

Thomson Media’s management team, which includes CEO Jim Malkin and Exec VP Bruce Morris, is identified as another winner in the deal. The management team will continue to operate the company, which would have been unlikely if some other companies interested in acquiring Thomson Media, such as Ascend Media with Cam Bishop at the helm or Apprise Media headed by Charles McCurdy, had won the bidding.

"It’s a great opportunity for the management and employees of Thomson Media. I look forward to working with the folks from Investcorp," said one Thomson Media insider.

A third winner is the media investment banking community--and not just Morgan Stanley, which advised Thomson Corp. in the deal. Judging from Thomson Media’s 2003 revenue of $170 million, investment bankers calculated that the trailing multiple on the unit’s EBITDA (earnings before interest, taxes, depreciation and amortization) could have been as high as 13. "It was a pretty frothy auction … and it was a big price," said Reed Phillips, managing partner of media investment bank DeSilva & Phillips.

Investment bankers believe, for one thing, that Investcorp is prepared to make add-on acquisitions to the Thomson Media deal. Additionally, they are hoping that such multiples may finally nudge many b-to-b media companies that have been sitting on the sidelines, waiting to sell their businesses when the market improved, into the M&A game.

At the same time, whatever optimism the banking community has is cautious, tempered by the knowledge that the EBITDA multiple based on Thomson Media’s 2004 figures will likely not be as tempting. "I’m sure the purchase price is being based on the full year 2004 … so it’s not that much of a premium," said Baran Rosen, president of M&A firm Whitestone Communications.

What losers there may be in this deal are unclear. As recently as a month ago, about 10 bidders were rumored to be after Thomson Media, so those that didn’t triumph at the auction may have lost out. Then again, Investcorp, with its $350 million bid, may have overpaid and thus may turn out to be on the losing end of the deal. This is the first foray into ad-based media for the company, which was founded in Bahrain and has acquired such properties as Tiffany's and Josten’s.

"It wouldn’t be the first time that a first time investor [in media] has paid dearly to learn the business," said Robert Crosland, managing director at AdMedia Partners. "It will be fascinating to see what they do with it."

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