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May 8, 2008

If RBI doesn’t sell, we’re not in Kansas anymore

By Peter Kirwan MM blog

Bernard Gray, the former FT hack and former boss of CMP, caused a bit of a ruckus at the PPA conference this week when he suggested that Reed Business Information might not find a buyer.

“The elephant in the room is RBI,” said Gray. “It’s not going to trade at the value that Emap traded at last year. There’s a significant chance nothing is going to happen to it.”

Coming from Gray, this was more than a bit cheeky.

For Gray is currently executive chairman of TSL, the company that owns the Times Educational Supplement. TSL itself happens to be bankrolled by the private equity firm Charterhouse Capital Partners.

And according to the Indy, Charterhouse is one of the private equity firms sniffing around. . . (yes, you guessed it) RBI.

So Bernard Gray has a motive for talking down the price of RBI. But does his argument hold any water?

The sale of RBI was announced back in February by Sir Crispin Davies, chief executive of Reed Elsevier.

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Now before you interpret the ensuing silence as negative, it’s worth bearing in mind that selling a company takes time. In fact, Reed Elsevier only sent out detailed financials — in the form of an information memorandum — to interested bidders this week. (According to the Times, the recipients are all private equity firms.)

Bidders will certainly try to argue that RBI should be valued on a lower multiple than EMAP.

The market’s valuation of pretty much everything has deteriorated during the past six months. In addition, Reed Elsevier is only selling magazines and web sites. It wants to hold on to Reed Exhibitions, and this removes value from the deal.

On the upside (for bidders, if not employees), RBI is a well-fed, well-watered, business.

(How many managing directors does it take to run the UK subsidiary of a £1.4bn-turnover publishing company? Down in Sutton, RBI has four, plus a chief operating officer and a chief executive.)

The value engineers of private equity must be licking their chops. To the extent that they can, er, streamline operations at RBI, they’ll be willing to bid more aggressively.

RBI also has attractions that EMAP didn’t. One of them is Totaljobs, the RBI-owned network of job sites that attracts 1.8m uniques every month.

That’s more punters than the Guardian‘s well-tended job site (1.4m). And although it’s some way off the market leader fish4jobs (3.2m), RBI’s online jobseekers are a better-qualified bunch. At Totaljobs, revenues are growing by 35% a year.

So while a successful bidder won’t get Reed Elsevier’s trade shows, they will get a solution — in so far as one exists — to the problem of shrinking recruitment revenues in print.

By contrast, building up trade shows — especially when you own a raft of successful magazines — has got to be the easier option.

In point of fact, because Reed Elsevier’s exhibitions arm has worked at arm’s length from its magazines, you could argue that RBI is bursting with potential for spin-off exhibitions and conferences.

Sir Crispin Davies’s decision to put RBI up for sale so soon after the sell-off of EMAP’s B2B properties looked a bit dicey. Markets, no less than human beings, can suffer indigestion.

But magazine portfolios like this don’t come up for sale too often. My guess is that Davies will get this one away.

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