Reed Elsevier readies for new acquisitions

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Recent comments by the CEO of Reed Elsevier, the parent company of Reed Business Information, add an interesting, new wrinkle to the b-to-b media M&A outlook.

In a conference call last week with reporters to discuss the company’s 2005 earnings, Reed Elsevier CEO Crispin Davis said the London-based media conglomerate plans to make a new round of high-profile acquisitions this year despite unveiling a $1 billion stock buyback.

“Our acquisitions have ranged broadly from the $50 million to $500 million sort of range,” Davis said during the conference call. “I would anticipate that being the scale of acquisitions going forward.” He said the priority acquisition targets would be in the legal, health care and b-to-b online markets but was quick to add that no major deals were currently on the horizon.

In addition to Reed Business Information, Reed Elsevier owns LexisNexis, which provides legal, news, public records and business information, and Elsevier Health Sciences, a major player in health care and medical publishing. Through imprints such as Mosby, Saunders, Churchill-Livingston and Harcourt, Reed Elsevier publishes 8,000 clinical reference works and 500 journals and handbooks covering primary medical research, clinical practice and allied health care. Reed Elsevier’s health care-related online revenues increased 30% last year.

Larry Grimes, president of media banking advisory firm W.B. Grimes & Co., said he was not surprised by Davis’ statement. “Health care is a hot spot right now, and Reed Elsevier has a great health care/science/pharmaceutical portfolio,” he said. “If he’s commenting on potential deals, it probably means a deal is already in front of them and [the company] is preparing the public for an announcement.”

Asked during the press conference if Reed Elsevier’s ability to make large-scale transactions was being threatened by private equity players—which have fueled most of the mega b-to-b media deals in the last two years—Davis said that some of the properties Reed Elsevier may be interested in “are also looked at by private equity companies, and that is the world today.”

Reed Elsevier certainly appears to have the capital to acquire new properties. In 2005, overall revenue for the company was up 7% compared with 2005; operating profit was up 8%; and EBITDA (earnings before interest, taxes, depreciation, and amortization) was up 9%. The company is projecting at least 5% growth in revenues this year and double-digit earnings.

Davis’ comments came a few weeks after Reed Elsevier’s chief rival, Dutch media giant VNU, went into play. A consortium of private equity funds has bid nearly $9 billion to acquire the company. Analysts say the consortium would most likely break up VNU and unload the b-to-b division, which includes Billboard and The Hollywood Reporter. A group of VNU shareholders reportedly proposed breaking the company into three pieces: publishing, media research and marketing research.

“Reed may be a player for a portion of VNU,” Grimes said, but was quick to add that Davis’ comments “may have nothing to do with what’s happening in the U.S.” M&A market.

Indeed, during the press conference, Davis singled out Europe and Asia as places where Reed Elsevier wants to expand its footprint, although not in print. “There’s plenty of opportunity in trade shows, particularly in emerging markets, such as Russia or Brazil,” he said. The company’s exhibition business rose 11% in revenues in 2005 and 14% in earnings.

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