Slowdown at the merge

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There are three rules for evaluating real estate: location, location, location. And there are three rules for acquiring b-to-b media: timing, timing, timing. For Asset International, which is part of a $950 million Austin Ventures private equity fund, the timing of the down b-to-b media M&A market isn't working out so badly. “Timing has a lot to do with this,” acknowledged Jim Casella, chairman-CEO of Asset International, a media company focused on the global financial industry. Despite the dismal market, Asset International has been able to acquire products while other private equity-backed funds remain on the sidelines because of the frozen credit markets. In July, it announced two deals, acquiring The Trade, a news source for fund managers, and Strategic Insight, a research company. It may have seemed ominous at first, but Austin Ventures closed on its $950 million fund the day that Lehman Brothers collapsed. However, it soon became clear to Casella that there might be some deals to be had in the chaos that surrounded the financial services industry. “We made a conscious decision that the institutional financial services market was not going to just implode after Lehman Brothers,” Casella said. “If you have a game plan and a vision, and you have access to capital, this is a very good time to be doing this,” he added. “B-to-b media is not going away.” With this vision and the large fund that Austin Ventures raised, Asset International has been able to make deals using equity and very little credit. The company plans to restructure the deals with more leverage when the economy rebounds and the credit markets thaw. Asset International is in a rare position, as most buyers are hamstrung by the lack of credit in the market, and few potential sellers are willing to explore a deal with the current market's depressed prices. Nonetheless, there are other, albeit meager signs of M&A life beyond Asset International. Among the trickle of deals that have taken place recently or are in the offing: ? The Economist Group in August acquired Congressional Quarterly from Times Publishing Co., which is owned by the nonprofit Poynter Institute and publishes the St. Petersburg Times. Times Publishing announced a few days later that it has placed another government-focused publication, Governing, on the block. ? The Financial Times announced late last month that it has acquired MandateWire, a London-based provider of information on European pensions. It is a subscription-based news product. ? Also in August, Reed Elsevier announced it has placed a portion of its Reed Business Information U.S. unit back on the market. The properties for sale include such well-recognized brands as Construction Equipment, Furniture Today, Interior Design, Library Journal and Publishers Weekly. Reed Elsevier signaled its willingness to divest its traditional b-to-b media properties in pieces by selling its U.K. travel publishing division in early July. The placing of portions of RBI U.S. on the block could give deal flow a boost because the properties are not likely to sell to one big buyer in a single transaction but to several buyers in a number of deals. “We expect M&A to go up from here,” said Scott Peters, a managing director of Jordan, Edmiston Group. Mike Parker, managing director of AdMedia Partners, said: “I think we're seeing some light at the end of the tunnel. I certainly think the Reed Elsevier decision is a precursor of sorts.” Whitestone Communications recently released figures that showed some mixed signs that deals made a modest comeback in the second quarter. In the trade magazine/trade show category, the number of deals fell to 11 from 19 in the year-earlier period, but the value rose to $77 million from $63 million. Nonetheless, the same problems that have caused b-to-b media dealmaking to grind almost to a halt are still out there, though perhaps mitigated slightly. The credit crisis has eased slightly, but most private equity players, which kept the M&A market humming through the greater part of the decade, have stayed on the sidelines for the past year. Additionally, the financial performance of most b-to-b media companies remains poor. With ad pages off 30% on average this year, low or at times nonexistent EBITDA is making it hard for sellers to get prices approaching what they could have commanded a year ago. “It's very much a buyer's market, and anything that is going to be bought is going at a lower price than it would have a year and a half ago,” Parker said. Finally, there is a lack of confidence in the future of the traditional trade publication model, which relies on controlled circulation and is advertiser supported. Reed Elsevier's decision to keep such paid subscription products as Reed Construction Data while jettisoning traditional trade publications is not exactly a vote of confidence for the controlled-circulation model. Citing these reasons, Reed Phillips, managing partner of DeSilva & Phillips, said, “It's going to continue to be tough. It's largely going to be more of the same. The credit markets are loosening a little bit but not enough to make that much of a difference.” On the other hand, to improve on the first half of this year, all b-to-b M&A needs to show is a pulse. In the first six months of the year, the number of b-to-b media deals fell from 11 to six, and the value plunged from $347 million to $17 million, according to Jordan, Edmiston data. M&A in the exhibitions and conferences sector posted similar declines with the number of deals dropping from 28 to 20, and the value plummeting from $447 million to $78 million. M
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