Dough Waiting for "Go"

Folio: The Magazine for Magazine Management, June 1, 2003 by Jeffrey L. Seglin

Byline: JEFFREY L. SEGLIN

Peggy Koenig, a partner with ABRY Partners in Boston, did not make Boston magazine's annual list of the 100 most powerful women in town. Her picture appears nowhere in her company's recently produced brochure, the first in the firm's 14-year history. ABRY's offices, on the elegantly furnished yet nondescript 30th floor of 111 Huntington Street, are on the opposite side of town from the city's storied financial district. On a Friday afternoon, the glass-walled conference rooms, and the reception area and its coat closet, are void of signs of any visitors. For that matter, there are few signs of any activity.

"Public recognition is not how we as a group are motivated, nor how I personally am motivated," says Koenig, seated in one of her firm's small, antiseptic conference rooms. "I'm not sure it does anything to help us generate deal flow or find ways to sell our businesses. The people who need to know who we are do know who we are."

Indeed, those looking to sell a magazine property - or preferably a platform made up of titles targeted at vertical markets - are well aware of who Koenig is. She started playing the getting-to-know-you game with the magazine industry three years ago, when private equity fund ABRY Partners IV raised $775 million and earmarked a chunk of the war chest for magazine publishing opportunities. But that was before the magazine industry was hit by a severe advertising slump and the M&A market went into a deep sleep.

Now, as the industry begins to climb out of the ad rut, ABRY, as an equity investor, is in an enviable position. So too, then, is Koenig, a savvy and well-respected player who, like others in her universe who are best-of-breed, is a devoted, calculating go-getter. When enticing properties finally come on the market, ABRY - and Koenig - can pounce, a maneuver that's impressive to behold. And with capital continuing to be tight in the this industry, the ability to strike a deal and help fund it - fast - is a distinct competitive advantage.

Of course, first there has to be something worth jumping on.

FLOTSAM AND JETSAM

For many in the mergers and acquisitions business, the rub has been in finding attractive properties in which to invest. "What we're seeing in the marketplace is a lot of the flotsam and jetsam that swept up on the beach, the properties that during the expansive 1990s were barely able to keep their nose above water," says Joel Novak, a managing director with Veronis Suhler Stevenson, a merchant bank and major equity-fund investor in New York City. "Whatever was sold in the last two years, with the exception of trophy properties, was sold at very reasonable multiples, because these were not robust properties even in good times."

Koenig, 46, is more sanguine, insisting for the record that "within both the publishing and information businesses, we have a healthy deal flow right now, some of the best we've had since we closed on Network Communications." In June 2000, before the market froze, ABRY purchased Cygnus Business Media, a business-to-business magazine publisher and trade show operator based in Westport, Connecticut, for $275 million. It waited 24 months to close another significant deal: ABRY bought Network Communications, Inc., a publisher of real estate magazines and information based in Lawrenceville, Georgia, for $124 million in June of last year.

But as the economic condition of the industry suffered over the past two years, so, too, have the returns on some of the equity funds that invested in the industry. "Equity funds are generating far less than the returns they generated in the '90s, when you looked for a minimum hurdle of 30 percent annual internal rate of return," says Novak. "Today, for those funds that were of 2000 vintage, you're probably looking at a 15 percent annual internal rate of return."

But Koenig, a determined if not fierce competitor who in 1989 finished the New York City Marathon at a 9:45 per mile pace (807th for her age at the time), refuses to acknowledge that ABRY's returns will be off the traditional mark. "We haven't changed our return parameters at all," she says. "We think that we can still find attractive investment opportunities to generate rates of return in excess of 30 percent per annum."

Naturally, there's a general bravado that goes with being a major equity player, but Koenig and partners may actually be able to deliver pre-millennium returns. A prime reason is that they never seemed to get caught up in acquiring the overinflated trophy prizes that swept the market in the late '90s, prizes selling at multiples that belied traditionally profitable economic models. Instead, they've sought out more mundane magazines, such as those catering to very vertical markets. As a result, Koenig and partners aren't saddled with magazine properties purchased as investments that seem nigh-impossible to recoup today. It's a strategy that now suggests brilliant foresight: When all about you are losing their economic heads, find the hidden jewels that few are looking at and build on the profits they can generate.