The New Face Of Money

Folio: The Magazine for Magazine Management, June 15, 2001 by Sarah Fetherston, Joe Hagan

B-to-b properties are attractive, says Warburg managing director David Libowitz, one of Coldony's bosses, because the marketplace remains fragmented and valuations are coming down, the entities have a high free cashflow, and there is a "need to buy" aspect from the advertising and subscription standpoints.

To date, Warburg Pincus has done only separate b-to-b transactions, but add-ons would be attractive, if possible. Managing director Patrick Hackett, who runs Warburg's Media, Internet and Business Services group, gives a sketch of a recent Warburg success: Information Holdings, an information publishing business formed in 1997 with Mason Slaine, the former CEO of Thompson Finance. The company has since gone public, and Warburg's initial $30 million investment has become a 45 percent share of a $550 million market cap. Over Warburg's 30-year history, it has invested around $2.3 billion in media holdings.

The firm has an aggregate portfolio of about $10 billion in 175 investments. With an active $5 billion global fund, Libowitz explains that the firm is unlikely to do small (in the $10 million to $20 million range) deals: "It takes a pretty big deal to make the needle jump on a fund this big."

But this doesn't mean that they'll only go after established companies. Colodny notes that, unlike other investors, Warburg will invest in or buy growing, but not yet profitable, companies. "The main criterion" for Warburg's investments, explains Colodny, "is whether the return is sizable enough--meaning over $100 million."

A five- to seven-year investment-time horizon gives the firm the opportunity to buy and then make additional investments; they prefer to be the largest institutional shareholder in any investment property. Libowitz says that they are "hands on," as investors, "but as not managers--we're not involved in the day-to-day."

As for an exit strategy, either a sale or a public offering is just fine.

* FUND CAPITALIZATION

$10 billion market value of current portfolio (already invested); $5 billion global fund (yet to be invested)

* INVESTMENTS

Information Holdings Star Media and Journal Register Co.

* PHILOSOPHY

Seeks larger-size deals--$100 million to $300 million. Shies away from consumer magazines

VS&A: OLD MONEY ON THE PROWL

Jeffrey Stevenson and his partners at Veronis, Suhler & Associates are the grizzled veterans of the media-centric private equity world, and it is their success (and in some cases, their investing model) that is the envy of all these relative newcomers.

The first two VS&A Communications Partners funds--1987's $50 million tentative entry and 1995's $330 million fund--have averaged internal rates of return of about 50 percent annually with acquisitions like Chemical Week Associates and the publisher of Stagebill, according to managing general partner Stevenson. Those numbers helped VS&A raise $1 billion for a third fund in 1999, of which it has so far invested half.

VS&A's strategy is well known: Buy a publisher, like Hanley-Wood's portfolio of home-building magazines, cherry-pick complementary titles, add a trade show or two and, voila, the whole shebang is worth more than the sum of its parts.