Skepticism now abounds surrounding Mr. Dunning's biggest gamble yet, in which his Dunning Group is part of the investment team that paid an estimated $430 million to $450 million to acquire Petersen, a specialty publisher of men's magazines including Guns & Ammo, Hot Rod, Motor Trend and Sport as well as teen girl titles Sassy and 'Teen.
Mr. Dunning won't comment on the estimated selling price beyond admitting it was "north of $400 million." He denied the sale price was for a multiple of close to 20 times earnings, based on last year's projected cash flow of about $21 million on $215 million in annual revenue.
`DID NOT OVERPAY'
Insisted Mr. Dunning: "We did not overpay. In the fullness of time, you'll find we paid traditional multiples for a platform deal" the company can use to build new properties.
"The agenda is to take Petersen public in a very short period of time-possibly as early as next year," the usually press-shy Mr. Dunning said in an exclusive interview with Advertising Age.
The investment team assembled by Mr. Dunning also included Chicago-based Willis Stein & Co. and publishing veterans Claeys Bahrenburg and Neal Vitale.
Mr. Dunning hopes to rapidly expand by paring operating costs while building the company via new, related magazines and ancillary products.
"Good luck with trying to find savings from Petersen," countered Peter Diamandis, one of a score of suitors who dropped out in the early bidding. "They ran a pretty tight ship."
Industry executives speculate that to trim debt, Mr. Dunning could sell off the teen titles to Gruner & Jahr USA Publishing, which owns YM, or K-III Communications, which owns Seventeen.
Mr. Dunning declined to discuss plans for individual titles but said the overall strategic objective is to rapidly grow revenues by making each magazine into a mini-business and expanding into radio, TV and international publishing.
"Petersen has strong relationships with readers," said Mr. Bahrenburg, who will be president-CEO. "The objective is to turn a $20-a-year customer into a $200-a-year customer" through ancillary products. Mr. Bahrenburg also will be trying to raise the company's profile. Mr. Dunning will remain behind the scenes as chairman-CEO of the parent Petersen Holdings.
Messrs. Dunning and Bahrenburg said the challenge at Petersen in reaching a broader base is similar to the one they faced in the late 1970s and early '80s at Rolling Stone, when Mr. Bahrenburg was publisher and Mr. Dunning president-chief financial officer.
Both left Rolling Stone in the early '80s-Mr. Bahrenburg to build a publishing career at Hearst Magazines, where he rose to president, and Mr. Dunning for a career that was largely entrepreneurial on the financial side of the media table.
That activity included the 1987 purchase of Yellow Pages company Multi-Local Media for $76 million. "At the time, people said I paid an enormous amount of money," he said. "Nine months later, we took it public for $120 million."
In 1992, Mr. Dunning parted company with Multi-Local Media and hooked up with Avy Stein, then with Continental Illinois Ventures. Together they bought from U S West a struggling Yellow Pages company, TransWestern Publishing, for $37 million.
"The company now makes close to $30 million in bottom line profit on revenues of $100 million," said Mr. Dunning, who continues to operate TransWestern as chairman-CEO.
Next, Continental Illinois backed Mr. Dunning's bid for Standard Rate & Data Service from the bankrupt estate of Robert Maxwell. Through prolonged negotiations, he was said to have whittled the final price tag to less than $40 million. Fifteen months later, SRDS' new owners sold the company to Boston Ventures for a price said to be $90 million.
Mr. Dunning's track record prompted Mr. Stein, as an independent investor at Willis Stein, to put up some 30% of the equity in the latest deal.
Mr. Dunning continues to feel that his biggest deal to date has the potential to be his biggest winner, saying, "The top 13 [Petersen] titles will have operating income of $57 million in 1996."