M&A activity heats up biz-to-biz: ABM

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[Boca Raton, Fla.] The sun shone, for the most part, on American Business Media's annual spring meeting last week, reflecting both the skies and the bright mood of the 350 attendees-the most since the Internet-frenzy days of 2000.

Signs of the business-to-business media sector's health were everywhere. Investment bankers stayed on their cellphones and off the golf course (where afternoon networking traditionally takes place), as they tried to stay abreast of the two large b-to-b media companies on the auction block: construction industry media company Hanley Wood and Primedia Business Magazines & Media.

`ROCKET SHIP'

In his official remarks, Gordon T. Hughes II, ABM's president-CEO, lauded the power of the industry, comparing b-to-b media's growth to a "rocket ship." Penton Media CEO David Nussbaum, a member of a panel that spoke at the conference, pointed out that in 2004 his company posted its first year of revenue growth since 2000. And Stephen Davis, group publisher at VNU Business Media's SRDS, discussing the new code of ethics being created by the ABM's publishers committee, cracked, "When publishers are talking about ethics, you know times are getting better."

On the surface, however, b-to-b media doesn't appear that strong. Print ad spending, the traditional bellwether of the sector's state, only grew 1.7% in 2004 compared with 2003, according to TNS Media Intelligence. Spring Meeting panels on trade shows and rich data (selling information to subscribers) showed that print didn't dominate b-to-b media as it once did, and companies are generating revenue elsewhere.

In fact, the growth in both top-line and bottom-line performance for many b-to-b media companies stems from the Internet, a source that seemed unlikely in 2000, when companies like Verticalnet were boasting about turning traditional media companies into dinosaurs.

But old-line b-to-b media companies have adapted to what marketers want and have evolved in the Internet era. During a panel discussion, Jim Casella, president-CEO of Reed Business Information U.S., said that his unit's online revenue as a percentage of overall reveunue would be between 15% to 20% in 2005. Forbes.com CEO Jim Spanfeller predicted that his unit's revenue would overtake Forbes magazine's ad revenue in the next 18 to 20 months.

Perhaps the most prominent sign of b-to-b media's resurgence was talk surrounding the potential sales of Hanley Wood and Primedia Business Magazines & Media. The two most talked-about ABM members at the meeting were two that weren't there: Frank Anton, president of Hanley Wood, and Peter Goldstone, head of the company's magazine division, both of whom canceled at the last minute.

The absence of these two Hanley Wood executives fueled speculation that the construction-industry media company was on the verge of being sold by its owner, a private equity fund operated by Veronis Suhler Stevenson. Final bids were due April 29, according to people familiar with the situation. The deal could be announced "any day now," one investment banker said.

Informed executives said that Blackstone Group, which is backing Robert Krakoff's Blantyre Partners, a J.P. Morgan private-equity fund and private-equity player J.W. Childs Associates were among the competing bidders. The earnings before interest, taxes, depreciation and amortization multiple would likely be north of 12-times, placing the price at $660 million or more.

Speculation at the meeting also surrounded the interest in Primedia Business Magazines & Media. A deal for that unit appeared less imminent, although Charles McCurdy, whose Apprise Media just bought Canon Communications from a VSS private equity fund, may be interested in the company he once bought for Primedia. Cameron Bishop, who once ran Primedia Business and now operates Ascend Media, was also said to be interested in Primedia.

confluence

The surge in merger-and-acquisition activity in b-to-b media is due to a confluence of factors.

On top of improving top line and bottom line results, private equity's interest in b-to-b media is no secret. Many funds, though, have sat on the sidelines while potential sellers waited for better times in order to command higher prices. Now that those better times appear to have arrived, transactions are taking place.

An additional factor is the willingness of banks to loan money. David Harrington, senior VP at GE Commercial Finance, said that banks believe b-to-b media has stabilized and that its niche model is in sync with what advertisers want.

The combination of available bank debt, ready and willing private equity money, and a strengthening b-to-b market has led to high EBITDA multiples. Some observers pointed to the recent sale of Canon Communications, which was said to command a 12-time multiple, as motivation for Primedia to put its b-to-b information unit on the block.

"Deals lead to more deals," said David VanderLugt, director-media & communications finance at Goldman Sachs Specialty Lending Group.

But even amid the optimism, there were voices of caution, noting that some clouds and maybe even a storm are on the horizon. Investment bankers privately said that private-equity firms may be paying prices so high that they will eventually struggle to make the deals worth the expense.

"There's beginning to be no institutional memory of the last recession," warned one investment banker, who spoke on condition of anonymity.

Sean Callahan is Media Editor at BtoB and BtoB's Media Business

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