M&A activity up briskly in first quarter

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Merger and acquisition activity in the b-to-b media sector continues to boom.

On Monday, Advanstar Communications announced a surprising $185 million deal to sell several market groups to Questex Media Group. Additionally, Lebhar-Friedman last week closed on its deal—estimated at $70 million—to acquire Dowden Health Media.

Also, two companies issued statistics demonstrating the growing M&A activity in b-to-b media in the first quarter, compared with the year-earlier period.

In the exhibitions and conferences arena the number of deals increased from seven to nine, and the value of the deals increased 16.7%, from $96 million to $112 million, according to media investment bank Jordan, Edmiston Group. In the b-to-b magazine sector, the number of deals increased from 11 to 12, but the value of the deals fell 48.3%, from $676 million to $349 million.

The number of acquisitions in the magazine/trade show field increased to 17 in this year's first quarter, from 14 in the year-earlier period, according to M&A advisory firm Whitestone Communications. The dollar value of these deals increased by 104% to $486 million.

"The first-quarter deal pace was up on the interest from strategic players and private equity investors," said Baran Rosen, president of Whitestone Communications. "And as the overall acquisitions market has improved, some major publishers are putting properties on the market."

A key property on the market in the b-to-b arena is Hanley Wood, the construction industry publisher owned by a private equity fund of Veronis Suhler Stevenson.

Under the terms of the deal announced Monday, Advanstar is selling several of its smaller market groups, including information technology, travel and beauty, to Questex, a new company formed by private equity firm Audax Group and Kerry Gumas, the VP-general manager of Advanstar’s information technology and communications group.

Advanstar said it would use the proceeds for debt reduction and the funding of organic growth and potential acquisitions. The company retains what most industry observers consider to be its strongest media clusters—fashion, health care, science and pharmaceutical—which generated about $275 million in revenue in 2004.

"This was a general housekeeping transaction," said Robert Crosland, managing director of media investment bank AdMedia Partners.

Joe Loggia, Advanstar’s CEO, said the two separate companies will be more nimble and better able to implement innovations than one larger company. "This is a strategy we’ve been working on in the past year," he said.

Observers, however, speculated that the move may signal the beginning of CSFB, which acquired Advanstar in 2000, executing its exit strategy. By making itself a smaller company, Advanstar has made an initial public offering an unlikely exit strategy in the short term, observers said. Additionally, because private equity funds usually try to exit within a seven-year period, some observers expect further divestment of Advanstar properties in the next two years.

Few observers expect Lebhar-Friedman to make any further acquisitions in the near term. Its purchase of Dowden Health Media is considered an uncharacteristic move by J. Roger Friedman, president of Lebhar-Friedman.

Friedman said the deal made perfect sense because of the compatible cultures of the two family-owned companies and because of the diversification it offers Lebhar-Friedman, whose key publications include Nation’s Restaurant News and Drug Store News.

Friedman said Dowden Health’s ability to reach health care providers meshed well with Lebhar-Friedman’s ability to reach drugstore retailers. "We’re in this for the long-term," he said.

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