Specialty publisher PRIMEDIA (NYSE:PRM) has been working to reduce its $1.31 billion in net debt. In late September, the company sold its Crafts Group for $132 million in cash; a more recent deal came last week, with the sale of 17 hunting/fishing magazine titles for $170 million in cash (including Game & Fish, Fly Fisherman, and Guns & Ammo). While such moves will improve the balance sheet, PRIMEDIA still needs more ways to increase its lagging sales performance.
A private equity firm, InterMedia Outdoor, purchased the 17 titles. Typically, such a buyer does not pay a high multiple, but that does not appear to be the case here.
On the conference call, PRIMEDIA's management indicated that the EBITDA margin for the magazines was in the "mid-teens," which would be roughly $15 million (based on the $100 million in 12-month trailing revenues). That translates into an EBITDA multiple of 11, which seems to be a premium price, based on other acquisitions for publishing assets.
However, despite the recent moves, investors remain skeptical. Since hitting $2.40 per share in February, the stock price has been in a tailspin, and is currently at $1.53.
For example, in the third quarter, net income fell from $207.8 million to $53.8 million; these figures were heavily affected by yet more asset sell-offs. In addition, revenue growth has been anemic, with a 3% increase in the prior quarter to $254 million.
PRIMEDIA has no shortage of great brands, with a stable of magazines that includes Hot Rod, Motor Trends, and Shutterbug. The company has also been able to extend the brand into events, television/radio programming, licensing, and web properties. As a result, PRIMEDIA has been able to snag top-tier advertisers like McDonald's (NYSE:MCD), Procter & Gamble (NYSE:PG), and Campbell Soup (NYSE:CPB).
But the fact remains that the company is facing the same problems of many traditional media players: Circulation for print publications is declining, and advertisers are becoming more results-oriented on ad spends.
While the company is having some success with its online properties, it hasn't been enough. At present, PRIMEDIA is getting most of its traction from asset sell-offs. Needless to say, that's hardly a viable long-term growth strategy.
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 327 out of 16,362 in Motley Fool CAPS.
