Fashionably Acquisitive

Folio: The Magazine for Magazine Management, August, 2001 by Teresa Palagano

A YEAR INTO ITS NEW OWNERSHIP UNDER DLJ, A REFINANCED ADVANSTAR HAS A $2 BILLION WAR CHEST AND IS SEARCHING FOR ADD-ON ACQUISITIONS IN 19 MARKET SECTORS.

When Advanstar bought Magic International, the world's largest fashion and apparel trade show, in 1998, it was a most appropriate purchase for a shopping binge. It was also a deal that served notice that the Robert Krakoff-led company was no longer a struggling business-to-business publisher desperately striving to get out from under a crushing debt; it was a media company with a well-financed roll-up strategy.

However, a planned IPO was pulled in 1999 as publishing companies fell out of favor on Wall Street, and financial backer Hellman & Friedman subsequently cashed out, selling the Cleveland-based company to DLJ Merchant Banking Partners for $900 million in August 2000. Now Advanstar, refinanced by its new owners, has access to about $2 billion and is again on the prowl for strategic acquisitions to add to its portfolio of 105 publications and 87 trade shows.

In a recent conversation with FOLIO:, Krakoff talked about what he's in the market to buy, how he's navigating through this miserable advertising market, Advanstar's missteps on the Internet, and whether the company will take another run at an IPO.

It's been a year since DLJ acquired Advanstar. What effect has the new ownership had on the company?

In one sense, the answer is very little, because they are financial investors. You probably have a Visa Card and a MasterCard--I equate it to that. One day we are owned by Visa, the next day we are owned by MasterCard. And other than a different logo, you don't know the difference. The management team that was running it for Hellman & Friedman is exactly the management team that has been running it for DLJ.

How will you build value for the new owner?

We have one of the highest profit margins of any of the media businesses you can find. We had $97 million of EBITDA on our sales of $377 million [in 2000]. That's well over 25 percent. I think you'd be hard pressed to find many companies in that range. So efficiency isn't the game-it's scale. We want to grow our businesses. And by growing them, we will probably grow our profit margins because there is leverage in size-particularly in trade shows.

What are you shopping for?

We have done 29 acquisitions in the last four years--and with the exception of buying MAGIC in the fashion market, and a group of female and children's shows in New York, everything else has been fill in acquisitions in the markets we're in. There's plenty of room [in those markets] to grow both in the U.S. and overseas.

To get the kind of growth and scale you're looking for, don't the targeted businesses have to be of a certain size?

Not really, you just have to do a lot of them. Look at this way: When I started with Advanstar, it was a $122 million company; four years later, we're pushing $400 million. MAGIC was one big one, but the average acquisition we've done is $15 million to $20 million.

Most of the big companies go through investment bankers and issue black books by the hundreds. Advanstar has no better chance of winning any one of those deals than you do, and that's not a very good strategy. We look within the markets we're in because the manager of the telecomm business or the manager of the fashion business knows the opportunities in that market. By having 19 [of these managers looking for acquisition targets], we have much more effective acquisition machinery than having one corporate planner attempting to do it all.

How big do you want to get?

Acquisitions are individual. They are not programmed. We could be a $1 billion [company] six months from now if we found the right transactions, or work just as hard and be a $1 billion [company] several years from now. The name of the game is consistent and profitable growth. It's not just scale per se.

Are you primarily interested in print-centric properties?

We are absolutely neutral on that We just bought [three] Cahners magazines [Automotive Body Repair News, Motor Age and Automotive Marketing] and a magazine in France [Centre d'Appels]. We've had a little more of an orientation toward trade shows, but it's not a perfect world, particularly outside the U.S. It's hard to talk about being centric to anything.

Are you looking overseas for growth?

Yes. Our international strategy is to done our U.S. strategy. About 87 percent of our revenue comes from our U.S. businesses, 13 percent comes from international businesses. We would like to be larger overseas. So the name of the game is to try to replicate some of the markets we're in overseas.

The industry just went through a period of mass consolidation. What comes next?

A lot of the big companies consolidated, but if you look at the number of companies that are in business, it hasn't declined in our industry. All you read about are the big deals, but there are little publishing companies starting up all the time.

The perception is that there's mass consolidation because some of the large guys have sold off big assets. Three years ago you would never have guessed that Miller Freeman would bust itself up. And Cahners is going through a wretched time. But what you're seeing is companies that shouldn't be doing things changing strategies--and then all of a sudden it looks like we're consolidating.