Hanley Wood deal indicates M&A market remains robust

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As Veronis Suhler Stevenson’s sale of Hanley Wood dragged on, some corners of the b-to-b media sector fretted that the sale of Canon Communications earlier this year might have been the high-water mark of this mergers and acquisitions cycle.

Those fears turned out to be unfounded. Last week’s sale of Hanley Wood for $650 million to an investment group led by JPMorgan Partners proved the b-to-b media M&A market remains robust. The trailing EBITDA (earnings before interest, taxes, depreciation and amortization) multiple was a robust 13.8, if revenue from Meyers Group, a Hanley Wood acquisition last year, is included for the full year.

The auction for Hanley Wood was a lively one, with JPMorgan and its partners beating out J.W. Childs Associates and the Blackstone Group. The reason for the delay in announcing the deal had little to do with VSS not getting its price but with financing challenges caused by turbulence in the bond markets after Ford Motor Co.’s and General Motors Corp.’s bonds were downgraded to junk.

Hanley Wood commanded a good price for many reasons beyond the generally strong M&A market in b-to-b media. It has a widely respected management team that has more than doubled the size of the company, from $100 million in annual revenue in 1999 when VSS bought it to $200 million today. It is also in a particularly strong market: construction.

That focus on construction may also be a weakness. "This is a great platform company," said Robert Crosland, managing director at media investment bank AdMedia Partners. "It’s a single-market company, and about as well run as you can find. The only things that can hurt them are things beyond their control. I’m sure they have a plan to diversify [under JPMorgan]."

Gruner + Jahr’s auction of its two business titles—Inc. and Fast Company—may prove a test case on how strong the M&A market truly is, because these two magazines are not performing as well as Hanley Wood’s properties.

Inc.’s ad pages declined 14.7% in the first four months of this year compared with the same period last year, according to Publishers Information Bureau figures. Last year the magazine grew its ad pages by 14.5% and its ad revenue was $83.3 million. Inc. posted ad revenue of $125.3 million in 2000, when Gruner + Jahr acquired the magazine for a reported $200 million.

Fast Company is struggling even more. PIB figures show the magazine’s ad pages were down 17.2% for the first four months of this year. This decline comes on top of a 21.3% dip in ad pages in 2004 compared with 2003. Its ad revenues in 2004 totaled $37.4 million, a far cry from the $77.4 million the magazine posted in 2000, when Gruner + Jahr agreed to buy it for a reported $360 million.

Insiders say there is great interest from both strategic and private equity buyers for both of these titles. Due to the interest, it appears "highly unlikely" that Meredith Corp. will have to take over the titles as it agreed to do in purchasing Gruner + Jahr USA’s consumer titles for $350 million.

It’s clear, however, that the ultimate sale price for Inc. and Fast Company will be a fraction of the combined $560 million Gruner + Jahr paid for the two publications, industry observers said. A strong M&A market can only do so much.

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