Private equity has been a like a drug dealer Advanstar Communications just can’t shake. For the past 20 years, the company’s entanglements with buyout firms have created a rollercoaster of near-disasters, yet the company keeps going back for more.
Advanstar been around the Park Avenue block, with private equity fingerprints going all the way back to when LBOs were still called LBOs. In 1987, the company underwent a Kidder Peabody-backed MBO after fending off several hostile takeover bids. The debt from that deal eventually sent the company into bankruptcy in 1989, at which point Goldman Sachs gained control of the company through a debt-for-equity swap.
Then in 1996, the company narrowly avoided another bankruptcy (according to reports at the time) when Hellman & Friedman purchased the company for $237 million. H&F led Advanstar through 28 acquisitions over its four-year stewardship, including a deal for its most profitable business, apparel industry expo MAGIC Marketplace. H&F exited Advanstar with a sale to DLJ Merchant Banking in 2000 for approximately $900 million. After at least one failed exit attempt, DLJ sold the business to Veronis Suhler Stevenson, Citigroup Private Equity and New York Life Capital Partners, for $1.14 billion.
So to recap: Kidder Peabody –> Goldman Sachs –> H&F –> DLJ –> VSS and friends.
I’m not saying Advanstar’s five sponsors haven’t contributed to improvements in the business (H&F in particular) or earned a positive return on their investments. But, like its first LBO in 1989, the company’s most recent near-death experience was caused by its buyout-related debt load. When VSS bought the company, it had around $835 million in debt and annual sales of $328 million, according to Moody’s. The company was assigned a corporate family rating of B3 at the time, which reflected Advanstar’s “high leverage, its vulnerability to B-2-B advertising spending; and the competition faced by many of its product offerings.”
Earlier this month, Advanstar’s private equity backers infused $35 million of new equity in the company and eliminated $385 million in debt. Bad deal for the company’s lenders, but Advanstar staved off bankruptcy for another day.
Despite the reduction, according to last week’s report from Moody’s, this band-aid doesn’t make the company’s leverage ratio anywhere near healthy. The company remains levered at greater than 10x, and Moody’s doesn’t expect Advanstar be able to lower that load in 2010. In fact, 2010 looks pretty grim.
Advanstar’s highest margin business, MAGIC Marketplace, has suffered from the decline in sales in the apparel industry, which is not expected to rebound. Meanwhile, the company’s life sciences trade publications are experiencing a “secular decline,” Moody’s wrote. In the first half of the year, revenues declined by 27%, and Ebitda declined even more. If those numbers keep falling, the company’s leverage ratio will only rise.
The company’s CEO, Joe Loggia, told Folio that the debt structure is manageable. “I can’t reiterate this enough,” he said.