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Wednesday, July 06, 2005

Advanstar: Interesting Speculation 

Rich Westerfield's TSMI's Trade Show Marketing Report has some interesting speculation on the possible disposition of Advanstar. He predicts Joe Loggia will buy back the MAGIC shows, that the medical properties will find a buyer, and that the powersports and licensing groups may go separately or together (I wouldn't be surprised if Danny Phillips, one of the smartest publishing executives I know, finds a backer to buy these. He's been rapidly building Advanstar's powersports properties.

The continued breakup scenario makes sense, especially given the fundamental changes in the company that occurred with the Questex deal. One of Advanstar's hidden competitive advantages has been its Duluth, Minnesota operation, which offers high quality production, circulation, fulfillment and financial services to the company, at a low cost. Nearly every investor who's acquired Advanstar (and there have been so many over the years) wrestled with what to do with Duluth, located so far away from the operating groups, and ultimately found that they couldn't get cheaper or better service by making a change. But with the sale of assets to Questex, the changes in Duluth began--some Duluth employees remained with Advanstar, some went with Questex and others were laid off. By selling the company in smaller chunks, the competitive advantage of Duluth narrows--and buyers who don't want to deal with having a far northern outpost can more easily merge back office functions into their own operations. And that's a shame for Advanstar's Duluth office--great people, who have done a great job keeping costs low and results high.

The second fundamental change wrought by Questex's acquisition: the majority of the company's 'legacy properties,' excepting powersports and some of the medical books, were taken off the table. These legacy properties, some of which date back to the very earliest predecessor company to HBJ Publications (which begat Edgell Communications, which begat Advanstar), were always a challenge for buyers: these cows have been milked for years, and run lean and mean. They generate decent cash flow, but as many buyers have found, there's not much growth that can be generated internally. So they were "acquired around," which gave birth to a fairly wide but not very deep portfolio of disparate properties. In the past 10 years, Advanstar has gone deeper in a few markets, which has helped. But the legacy properties didn't seem to get much attention. I hope Questex can reverse that trend, focusing on building within these legacy markets, and turning that legacy into a viable future.

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