Veronis, Suhler Emerges As Major B-to-B Player

Folio: The Magazine for Magazine Management, Dec 1, 1999 by Bob Moseley

A leading M&A company builds a trade-publishing giant through its private-equity funds.

One of the fastest-growing companies in the business-to-business space isn't a magazine publisher in the traditional sense. It's Veronis, Suhler & Associates, the 18-year-old investment bank and deal brokerage that manages two private equity-investment funds and is emerging as one of the biggest trade-magazine publishers in the business.

With several high-profile acquisitions this year, VS&A's portfolio companies--if aggregated and operated as a single unified entity--would be a company with about $250 million in revenues, enough to place it ninth among the largest b-to-b publishers.

Of course, those holdings--including Hanley-Wood Inc., Chemical Week Associates, Canon Communications and The Official Information Company--are not a single entity. They operate independently and, theoretically at least, can compete against one another. But New York-based VS&A increasingly has transformed itself into an equity-investment vehicle, and, by extension, a magazine publisher, even while maintaining a thriving M&A business. It created the first of three investment funds in 1987, with a total capitalization of $57 million. It added a second fund, with $330 million, in 1995, and a third, capitalized at $1 billion, in 1999.

The third fund acquired Hanley-Wood in August, and Chemical Week Associates completed the latest acquisition, of several chemical and plastics magazines from McGraw-Hill, in October. In fact, backed by the VS&A fund, Chemical Week this year has acquired or launched seven niche titles to serve the chemical industry. Its roster of titles has grown to 10, and it has expanded its market presence to include plastics--the chemical industry's single-largest product segment.

The latest deal reunites Chemical Week with its former McGraw-Hill brethren. Chemical Week, sold by McGraw-Hill 11 years ago and bought by VS&A in 1997, was already home to several McGraw-Hill veterans. "We just recreated the original group outside of McGraw-Hill," notes VS&A managing director Hal Greenberg.

With an equity-investment business worth nearly $1.5 billion as well as the deal brokerage, how does VS&A see itself? Decidedly not as a publisher, says Greenberg. "We don't get involved in running the businesses," he says. "All we get involved with is fronting the money."

And this independent model, Greenberg says, is clearly distinct from what a cohesive publishing company would do. "Because they are all independent, there are some inefficiencies--separate printing contracts, for instance," he says. On the other hand, he adds, each operating company has "more of an entrepreneurial spirit--which you wouldn't have if they were amalgamated into one big company. Each one has its own culture."

Frank Anton, president of Washington, D.C.-based Hanley-Wood, which with just more than $100 million in revenues is the biggest of the VS&A operating companies, says that being owned by an equity firm is the best of both worlds. "We have an equity fund where people clearly understand publishing, but at the same time are not set up to be, and don't want to be, the operators," he says. "They have both the funding and also the publishing acumen for day-to-day advice."

And the 26-title company was acquired with growth in mind. "They made a major investment in Hanley-Wood," Anton says. "They made it clear right from the start that they wanted to use Hanley-

Wood as a platform to grow the business on the b-to-b side."

"We have a lot of interest in b-to-b magazines," says Jeffrey Stevenson, a VS&A partner and president of the company's private-equity funds. He said the funds have averaged returns of more than 50 percent over the last 10 years and that VS&A expects to get at least 30 percent from its b-to-b holdings.

With the rise of its funds, VS&A walks a line between being a company that brokers magazine-company sales on the one hand and buys magazine companies on the other. "There's certainly that thought in the back of 6your mind as a potential buyer," says Cameron Bishop, CEO of Overland Park, Kansas-based Intertec Publishing. (Intertec Publishing is FOLIO:'s parent company.) "Working with them and having them as a competitor would be cause for concern."

But VS&A executives say a "Chinese Wall" has always existed between the investment bank and its private-equity funds. "The fund side is more of an opportunistic buyer, it tries to do private deals," Greenberg says. "More important, if the investment bank is the seller, the fund cannot be the buyer. That's just the way we operate."

Penton Media CEO Thomas Kemp notes that it's not unusual to have large investment banks involved in M&A practice. "The reality of the business is we have huge challenges to face--from softness in advertising to Internet competition. There are a lot of other things that keep me awake at night."

                         Top Trade Publishers [*]
                         Estimated annual revenues
 1. IDG                           $2.56B
 2. Cahners Business Information   $880M
 3. Miller Freeman Inc.            $750M [  ]
 4. McGraw-Hill                    $490M [*]
 5. VNU USA                        $450M [*]
 6. Ziff-Davis                     $410M
 7. Intertec publishing            $400M
 8. Advanstar Communications       $340M
 9. VS&A                           $250M [*]
10. Crain Communications         $241.6M
11. Penton Media                 $233.1M
(  .)INCLUDES 1998 REVENUES FROM CMP MEDIA,
WHICH WAS ACQUIRED IN APRIL 1999
(*.)INCLUDES ONLY B-TO-B MAGAZINE-RELATED HOLDINGS.
SOURCES: ESTIMATES, COMPANY REPORTS