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Primedia: Niche Means Profits?

Yesterday, I mentioned several companies that could be targets of rollups in the Internet sector. This raises the question: Who will launch the rollups? Well, there will be a smattering of companies. Perhaps a majority will be traditional companies that need to add Internet capabilities.

One that looks promising is Primedia . In fact, yesterday the company announced it was buying About.com .

Haven't heard of Primedia? Well, you have certainly heard of the company's products. They include magazines such as Seventeen, Soap Opera Digest and even Lowrider. Basically, the company focuses on niche content. For example, the company publishes Telephony, Soybean Digest, Horticulture, and National Real Estate Investor.

It should be no surprise that the company has hefty revenues. In the past quarter, sales were $395 million, which was up 7.2% from the same period a year ago. Its EBITDA was $42.6 million.

Although, the company is no stranger to the Web. In all, it has more than 300 Web sites. Then again, its traditional niche content has translated nicely to the Net environment. For example, GR8RIDE.com, an aggregator for auto enthusiasts, was launched in the third quarter. Already, the site has 800,000 users.

The acquisition of About.com definitely makes lots of sense. The site is an conglomeration of niche content areas - managed by actual humans. The site has about 700 topic areas and 10,000 experts. And, hey, About.com also has about $133 million in the bank and no debt. Interestingly enough, About.com is expected to reach operating profitability by the first quarter of next year.

What makes the deal so enticing is the synergy - the melding of the Old World and New Economy. Primedia has a 200 million reader base. What's more, the company has a sales force of 1,600 and has about 60,000 advertisers. In other words, Primedia has an awesome opportunity to monetize its online assets.

Lurking in the shadows of Primedia is Kohlberg Kravis Roberts (KKR), the famed leverage buyout firm. Yes, the firm certainly understands rollup opportunities. KKR currently owns about three-quarters of Primedia and Henry Kravis is a board member. Actually, Primedia has been methodically buying Net companies. In the past quarter, the company purchased four Internet sites in the power and transmissions industries. There was also a purchase for TheWeddingNetwork.com, which should fit well with the Modern Bride magazine.

As has been the case with recent acquisitions, Primedia's stock got whacked yesterday, falling 25%. However, the deal looks like it could be very successful -- and now you can buy Primedia at a discount.