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.

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