A b-to-b publishing paradigm

Folio: The Magazine for Magazine Management, May, 1999 by Paul McDougall

After several relatively quiet years, VNU USA is on an acquisition roll, building value by exploiting ties between editorial properties and corresponding information units.

VNU USA, with 1998 revenues at roughly $700 million, has become one of this country's biggest and most entrenched players in the business-to-business publishing market. And anyone who knows VNU's history with magazines in the United States knows that's saying a lot.

Last year, VNU USA generated 24-percent of VNU's worldwide revenues, compared to 13 percent when it entered the market five years ago. Now, after running up one of 1998's most impressive strings of acquisitions, primarily through its New York-based Bill Communications unit, VNU's latest expansion effort in this country is, by all accounts, just warming up.

It wasn't that way 10 years ago, when Haarlem, The Netherlands-based publishing giant made what might charitably be termed a strategic exit from the U.S. magazine market. Just two years into the $40 million 1986 acquisition of Hayden Publishing's computer magazines, VNU executives pulled the plug on the books amid charges of inflexibility, mismanagement and a failure to understand American business.

What appears to have happened between the Hayden debacle and now is VNU's discovery of a new formula for success in the West. Through BPI Communications, which it acquired in 1994, and Bill, which it bought that same year, VNU has established a solid presence in markets it can serve not only with traditional media, but with parallel operations on the pure data and research side--some of which reside within the company's Marketing Information Services division.

"We want to aggregate products and services so that we can serve our markets regardless of the economic climate," says Gerald Hobbs, VNU USA's CEO and parent company board member, whose experience with BPI predates VNU. Hobbs first joined BPI in 1969, then led a management buyout in 1985. Two years later, he helped engineer BPI's sale to Boston Globe publisher Affiliated Publications, but stayed on as CEO. In 1991, with Boston Ventures, he led a buyout of the company, and ultimately helped broker its sale to VNU in 1994.

Hobbs says that the company's current approach allows the magazines and the information units to create symbiotic relationships, while giving VNU USA as a whole multiple entry points into a market: "The information and data generated by our MIS companies--in many cases we have it as proprietary editorial. Simultaneously, we're promoting that information because we are branding it in the magazine."

It is a strategy that company executives say they will continue to carry forward and build upon. Bill, for instance, has grown its magazine holdings in the past two years from 13 titles to 40, while doubling revenues to $114 million last year. Meanwhile, BPI is on pace for double-digit revenue growth in 1999, according to company officials. And VNU MIS last year made several key acquisitions in the entertainment and retail markets.

What's largely driving VNU's American push over the last year is global economics. Some of the regions in which the company had hoped to build a larger presence have tanked in recent years--namely Eastern Europe and Asia. Meanwhile, the U.S. market remains hot. "A lot of the big international players are looking to the U.S. again," notes Reed Phillips, managing partner at investment banking firm DeSilva & Phillips.

Of course, the downside of the robust U.S. market, from the standpoint of a company bent on expansion, is that media properties are selling at all time highs. Thus, the challenge for VNU USA management will be to extract maximum value from new titles, trade shows and services acquired in such an environment. As BPI CEO John Babcock puts it: "No one wants to make an acquisition at a 15-times multiple and have it remain at 15 times. If you're going to make an acquisition at 12 to 15 times, in three years you've somehow got to make it look like you bought it at seven times."

Bill of goods

This pressure to extract value from new holdings will be most keenly felt at Bill Communications--which VNU also acquired from Boston Ventures in 1994--simply because it has been the company's most aggressive aggregator of late. Bill publishes numerous b-to-b titles in the food, long-term healthcare, consumer-packaged goods and retail markets. It also owns related trade shows, conferences and information products.

Bill's expansion strategy is straightforward: The company looks for profitable properties that will give it a broader presence within its core markets. Its acquisition in February of Macfadden Publishing's Business Communications Group and Beverage World Group for $80 million is a perfect example of this. The buy--which included Supermarket Business, Discount Merchandiser and Gourmet Retailer--gave the company a stronger presence in the food market, but it has also provided Bill with an opportunity to create a more horizontal presence in the industry. "It really brought us deeper into food retailing," says Bill president and CEO John Wickersham. "And that, in turn, brought us more deeply into retailing itself."