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Thursday, March 09, 2006

Advanstar: The Big Momentum 

I listened in on Advanstar's conference call today, and came away, frankly, impressed.

Among the highlights:

The company's plans for 2006 include the launch of 12 magazines and special issues, 24 conferences and shows and 45 new webinars.

They'll be creating a centralized electronic media group to manage and grow their Internet business, which grew to $3.6 million in 2005, up 300% over the previous year.

In the fourth quarter of 2005, magazine revenues were up 9%, ad pages were up 14%. They seem to have fixed the problem with their healthcare special projects, which weighed heavily on magazine revenues over the past year. There was a 12% year-over- year increase in that business in the fourth quarter.

On the show side, they're also carrying a lot of momentum into this year. In the first quarter, the MAGIC show delivered a 16% increase in revenues, a 9% increase in square footage, and about a 10% increase in attendance (And yes, this compares apples to apples, factoring in the 2005 performance of the Pool and Project acquisitions). The Dealer Expo, which I recently referred to, was up 7% in revenues and 27% in attendance. And the International Motorcycle Show Tour was up 15% in revenues, 8% in square footage and 16% in attendance.

CEO Joe Loggia was quizzed on the true organic growth rate of the business by an analyst, who said that without launches, it seemed to be about 3-4%. Loggia argued with this reasoning, saying that launches were organic growth (I agree). "What sets us apart in the business to business world is that these launches do drive growth. We don't talk about growing ad pages or square footage. We talk about growing our market presence in each segment." He thinks Advanstar's true organic growth rate in 2005 was 6-7%.

The debt situation looks under control, cashflow is good, they're in compliance with covenants.

Interestingly, I hear the situation is not quite as good at Questex, the company founded out of the sale of "non-core" Advanstar assets last year. Caveat emptor.


Advanstar's 2005 results 

Advanstar's 4th quarter and full year 2005 results have been released.

A brief summary: 2005 revenues were up 7% to $288.9 million. Operating income is up 34%, EBITDA is up 6% (to $74.5 million).

Major reasons for the revenue increases: 14% growth in shows and conferences, and a 24% growth in marketing services (which primarily reflects Internet revenue growth). Publishing was essentially flat on the year, but if a large decline in healthcare custom publishing revenues is discounted, publishing revenues grew 3% over 2004.

Proceeds from the sale of assets to Questex is included in the income figures.

Interesting facts:

Shows and conferences spin off a 55% contribution margin.
Marketing services delivers 34%.
Publishing's contribution margin is 31.4%.

Those are all good numbers.

I'm still a little unclear on how Advanstar will look when proceeds from asset sales and income from discontinued operations are excluded, but hope to learn more today.

UPDATE: See my next post.


VNU: Whistling in the Dark, Etc. 

Whistling in the Dark?

From (VNU USA) National Jeweler's editorial director, Whitney Sielaff, on the pending sale of VNU to a consortium of private equity firms:

"This is an excellent development for NATIONAL JEWELER, its readers and customers," Sielaff says. "As we celebrate our 100th anniversary in 2006, we can now look forward to elevating our service to the industry even further, given the support and operating environment that a privately held company will provide. Short-term financial results will be far less important for every brand the company owns, including us. What will matter will be driving the scope and value of the information servicing we provide to jewelers to help them build their businesses stronger."

I hope he's right. But in my experience, there's nobody more short-term than bankers. Miss your numbers, and you'll dream of the days when that just made your stock price drop. Debt has to be repaid contractually; shareholders want to be repaid, too, but sometimes aren't. That's why the stock market is risky.


Also, from The New York Times: two major VNU shareholders (Fidelity and Knight Vinke, who own 17% of the company) are already on record as opposing the deal.


Because the sale agreement is subject to approval by shareholders representing 95 percent of VNU's shares, the two dissenting shareholders would appear to have sufficient power to block a deal.

I wonder what VNU's board is thinking. Having learned (one would hope) a big lesson from shareholder reaction to the aborted IMS deal, they should have engaged major shareholders in the sale process upfront, to earn buy in. The disconnect here is painful, and apparently, continuous.


In the meantime, VNU continues to acquire things, bringing into the fold.


The acquisition builds on the existing VNU cross-media brands Computable, PCM, Computer Idee and Emerce. VNU also recently bought the rights to publish content from the popular Gizmodo blog, based in the US.

"The acquisitions of The in the UK, in France and in the Netherlands are important steps to transforming VNU Business Media Europe to the leading European cross-media player," said Ruud Bakker, CEO of VNU Business Media.


The Financial Times has a nice summary of VNU's history and operations.


Wednesday, March 08, 2006

Converting Stakeholders to Shareholders 

The potential VNU deal has me thinking again about the negative effects of debt on the quality of b2b media. And the potentially negative effects of shareholders. Shareholders naturally want what's best for them, regardless of the consequences to the company they're invested in. So a sell-off that returns a nice ROI, but leaves the company swaying under a ton of interest payments, makes sense to shareholders. They've achieved their goal, and have moved on.

But marketplaces need information and analysis--lots of it. Markets react to any information, regardless of how poorly thought out it is. Look at the way the housing market is being talked into a downturn. Whether or not there's really a housing bubble, what's important is that investors, home buyers and sellers, reporters and market analysts think there's a housing bubble, based on the information they have. And so the market reacts accordingly.

B2b media, done well, provides better (though far from "perfect") information that helps marketplaces thrive and prosper. It's in the interests of b2b media's stakeholders--readers (buyers) and advertisers (sellers)--to have the best information possible. It's certainly not in their interests to see their information vehicles loaded up with debt and cut to the bone in terms of editorial and circulation resources. It's not in their interests to have less information from which to make decisions.

So b2b media's stakeholders have a far different set of interests than b2b media's shareholders.

Perhaps its time for these stakeholders to become our shareholders and owners, in the same way that the Associated Press is owned by its member news organizations, or the New York Stock Exchange is owned by its member brokerages (and as of today, the general public, which is a huge stakeholder in the NYSE's activities.)

Sure, I can anticipate the reaction to this idea. "Advertisers owning us? What about our credibility? Readers owning us? What do they know?" But I'd rather be owned by advertisers and readers than by a P/E firm. At least their self-interest (in the need for good, reasonably accurate market information) would tend toward aligning with my self interest.

Frankly, when I look at the P&L of any b2b media property, I know that our readers and advertisers already "own" us. Without them, there'd be no revenues, no profits, no jobs for all of us. But it's the part of the P&L that includes corporate overheads like interest payments (way down there after the contribution margin) that concerns me most.

For more debt-related musings from this blog, see The Perils of Debt, M&A Mania, At the Bottom of the List, and others.


VNU: Waiting for the Fat Lady to Sing 

VNU agrees to $9 bln private equity buyout

The private equity group of Kohlberg Kravis Roberts & Co., Blackstone Group, Carlyle Group, Hellman & Friedman, Thomas H. Lee Partners and AlpInvest Partners has made a formal bid of about $9 billion for VNU (28.75 euros a share). Including debt, the offer represents a 13.4x multiple of EBITDA.

But VNU's shareholders have proven themselves to be an ornery lot, and 95 percent of shares must be tendered for the deal to close.

Key grabs, from the Reuters article linked above:

VNU had contemplated selling off pieces of the company, but said it had had no such offers and that a break-up would have adverse tax effects, cost the company economies of scale and go against its customers' wishes.

The private equity group said it planned to keep VNU "substantially together as an integrated company," while Ruijter told a news conference in Amsterdam that the group agreed not to break up VNU for at least 18 months after closing the deal.

"There are indeed no given guarantees," Ruijter said.

My takes:

1) The offering price is going to come up before shares are tendered.

2) If the deal goes through as is, it's the beginning of the end anyway for VNU as the company is currently constituted. This thing will be financed by senior debt and a high-yield bond, probably a crushing load of same. One nice recession, and the sell off will begin.

3) I don't buy the "economies of scale" and "customer's wishes" arguments, and I doubt the P/E firms do either. VNU, like other giant media companies, has never fully leveraged its various properties to the benefit of its customers. And I'd guess that the only real economy of scale is at the super-overhead level. Does A.C. Nielsen really get an economy of scale by being housed within the same corporate umbrella as a group of magazines or tradeshows? (I don't know what the tax issues of a breakup might be, so can't comment on that, other than to say that when billions of dollars are being tossed around, some of that money can surely be used to hire smart tax people).

4) The presence of Bob Krakoff in the deal (via Blackstone Partners) is a good thing. Perhaps he'll be able to mitigate the effects of the presence of KKR, which has fumbled media acquisitions badly in the past (see Primedia). He'll also do a fine job running the b2b media properties globally. Hellman & Friedman also has some good experience (via Advanstar) that will come in handy.

5) The only way for the P/E firms to get an ROI out of this will be from a breakup. At this deal size, I seriously doubt we'll see a flip in five years for $15 billion--though a refloating of public shares is an option, but not one that I think anyone is betting on. Given that, I think VNU's management is looking for a quick solution that passes the responsibility for breaking the company up to others. A breakup of assets will yield a higher return, at least in theory...otherwise, the P/E firms wouldn't be bidding. And I think the shareholders will figure that out, and either demand far more cash now, or force the board to do its job, and represent the best interests of shareholders by selling the company in (albeit) large pieces.

This one ain't over yet. The fat lady isn't even clearing her throat.


Tuesday, March 07, 2006

Under the Radar 

“I would prefer that we continued to stay under the radar.”

Folio:'s March issue features a cover story (linked above) on Andrew Schofield's Schofield Media Group, a $40 million b2b media company with 10 magazines in the UK and 14 in the US. Andrew's the guy who founded Conquest Business Media, one of my favoritely-named b2b media companies.

Folio:'s story is excellent, and highlights a company I wasn't familar with.

A brief cruise of the in-bound clicks to this blog brought another 'under the radar' (at least to me) company to my attention. Check out Wilmington Group PLC, a publicly-traded UK-based media company with more than 80 million pounds in annual turnover.

I particularly like their stated investment strategy, which strikes a balance between being a strategic buyer and a venture capitalist, something that most b2b media companies don't attempt (but perhaps should):

Our focus is to invest in businesses with experienced, dedicated and motivated management who share our determination to build a progressive and healthy business. This may take the form of an existing business or a sound business proposal.

Wilmington believes strongly in equity participation. We wish to continue to back management buyouts and partial buyouts of existing businesses.

I wouldn't be surprised to see this company some day end up with significant pieces of VNU or Emap, if those two companies pursue a breakup startegy.


A Brief Blogging Lesson 

As some of you may have noticed, I blogged infrequently over the past month--a confluence of too many projects, too many deadlines and not enough to say. The result? My daily visitor count has been halved, and while it's slowly climbing again, it's still well below average.

If you want to successfully blog for your magazine, trade show, conference or website: post frequently.


The People You Meet in B2B 

More than a decade ago, when I was running part of Advanstar's operations on the West Coast, I had the pleasure of supervising Dealernews, a motorcyle trade magazine, and its related properties. I loved that business--the editors and salespeople would show up at the office in their riding leathers, there'd always be a herd of beautiful, powerful bikes in the parking lot, and our annual trade show was a trip--you'd see big, burly bearded guys in Hell's Angels jackets sitting down in a booth with guys in suits, doing business.

One of our salesmen was John McLaughlin (that's him in the picture, with James Dean), perhaps one of the nicest people you'd ever want to meet. John was always smiling, always positive, always successfully selling pages. After he lost his arm in a pretty horrific motorcycle accident, he was still able to pursue his other passion, golf, one handed, while maintaining and growing his territory.

John was the kind of guy who makes b2b media fun--he was a player in his business, not only a participant, but a pioneer. I just heard yesterday that he had passed away this year, at the age of 81.

He was inducted into the Motorcyle Hall of Fame in 2001. You can read his bio here. Here's a grab:

He will be remembered as a racer and a visionary who played an important role in helping to foster the modern era of road racing in America.

Godspeed, John. B2b media was lucky to have you, and I was lucky to know you.


Monday, March 06, 2006

Emap: Private Equity Target? 

Long-term doubts cloud short-term sale boost for Emap

Emap is exiting its French consumer magazine business, and the (London) Times' Dan Sabbagh offers some analysis (linked above) of what he sees as the company's "limited growth prospects."

Sabbagh focuses on the b2b division, noting: "Further investment here will please investors, although Emap has to compete for assets with the likes of Reed Elsevier, DMGT and United Business Media."

But his conclusion is interesting: "Investors’ best hope is that without France, the company will be an attractive takeover target — with a private equity house perhaps splitting up the business. The thought is compelling, but it is the only reason for buying the shares. On fundamentals don’t expect much."

Given the competition for acquisitions that Sabbagh sees, and the over-hot private equity play for VNU, Emap seems in for some kind of big squeeze. It will be interesting to see how this plays out.

Maybe the company will make another attempt to enter the US market? Perhaps focused solely on b2b? Stranger things have happened.


Penton Leaps 

On Friday, Penton's stock shot up 27%, on heavy volume, and ended the day at 71 cents a share, establishing a new high for the 52-week period. In fact, the last time the stock was this high was May 2004.

Penton's had a history of bizarre one day leaps, only to settle back the following trading day, so it will be interesting to see what happens today.

As you know from my prior disclosures, I own some Penton stock--now enough to buy two mocha lattes at Starbucks with a double shot, thanks either to:

1) Day traders
2) Some big news in the offing
3) Another anamoly

We'll see which is which soon.


Sunday, March 05, 2006

Deadly Dignity, E-Paper and Publishers in a Box 

Sunday mornings are meant for serendipity. The Sunday New York Times, a cruise of the 'Net, a family chat...what a way to start (or end) a week.

I began this Sunday with a tour of my favorite feeds, and found Rex Hammock pointing to a post by Kathy Sierra, who is a terrific blogger. I discovered some interesting links that will help my daughter with her horse riding. She's riding in her first "real" horse show next week.

Kathy's blog, Passionate, really resonates with me. An example is her post "Dignity is Deadly, Part Two." In it, she ponders a statement made by Paul Graham:

When you evolve out of start-up mode and start worrying about being professional and dignified, you only lose capabilities. You don't add anything... you only take away. Dignity is deadly.

Kathy has created a terrific list comparing "start-up" and "corporate" mentalities. See, for example, her side-by-side mission statements:

Start-up: "We love what we're doing. We need to make a profit so that we can keep doing it."

Corporate: "Our mission is to deliver expert solutions to customers while maximizing shareholder value."

Check out her list, and ask yourself on which side your company falls.

Dignity and E-Paper
After thinking some on the "Dignity is Deadly" theme, I came across a nice little roundup from the BBC on e-paper. Readers of this blog know that I'm somewhat unnaturally excited by the prospects of e-paper.

Here's a long grab from the BBC piece:

But the publishing world is undecided about e-paper. Even publishers who are moving into the hi-tech arena with e-books reserve judgement on e-paper.

"We have to treat each development cautiously. I don't think we want to jump in with both feet," says Penguin e-book editor, Jeremy Ettinghausen.

"E-ink is obviously something very exciting. One of the principal objections people voice about e-books is that they don't like reading off a screen so I can imagine a device that looks and acts exactly like paper would be something that would be very attractive.

"But I think it's something that we'll wait to see how the market evolves and how the technology evolves."

Sounds to me as though Penguin is fairly dignified. And slow. And plodding. And perhaps soon to be left in the dust.

Dignity and GRID Media
This dignity issue has been much on my mind of late. We're in the process of redesigning our website, which has been, for the past six years, a fairly simple, poorly designed thing. For the redesign, my partner Scott Chase and I have been spending some time thinking about what our company really is. We have all kinds of definitions, but the one that our customers have focused on is this: we're publishers in a box. That is, we're a complete solution for media owners who have a problem. You hire us, we deliver (though not always to our own expectations--some projects simply have little chance of success, and we're learning how to identify those up front.)

Publishers in a box. It's an easy phrase to remember, and gets at the heart of what we do. Sure, there are problems with the phrase. Are we stuck in a box, can we not think outside the box? That kind of stuff. But when our customers call, they're looking for that complete solution to their problems, and not just some 'consulting.'

As part of the web redesign, we asked my wife, Rene, who is a photographer, to shoot some headshots. She convinced us that we should try some things outside the normal range of 'uncomfortable smile, head and shoulders, stiff pose,' so Scott and I ended up standing in a box, back to back, for a series of shots. They're funny--two guys in suits, trying to remain upright and balanced in a tiny space, with some of our most recent projects spread out on the floor around the box.

We showed a few people the results, and everyone laughed. Then I started to worry--if we use this type of image on our website, will we become the 'funny' guys standing in the box? Will we be laughed at? Will we, frankly, be undignified?

Thanks to serendipity, Rex, Kathy Sierra and Penguin Books, for the reminder that dignity is deadly. Here's an outtake from the photo session, in super low res. When the GRID Media site redesign is completed (around the same time that pigs fly, we project), we'll use a version of this image. And when you give us a call, or meet us at conferences, have a laugh, and then do business with us. We're your publishers in a box--or conference/trade show managers in a box, or association managers, or online producers, or whatever you need, media-wise. I'm the guy on the left, Scott's the guy on the right.


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