Mergers & Acquisitions An Insider’s Guide to the Magazine Marketplace The DeSilva & Phillips

1. Mergers & Acquisitions An Insider’s Guide to the Magazine Marketplace The DeSilva & Phillips Report 2003

2. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • About DeSilva & Phillips • Founded in 1996 • Investment Bankers Exclusively Focused on Media • Over 111 Transactions Valued at $2.5 Billion • Media Sectors Served: • Magazines Trade Shows & Conferences • Medical Media Internet • Newsletters Information Businesses • Direct Marketing Marketing Services • Television Production Newspapers • Yellow Page Directories Books

3. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • Current Trends Shaping the Magazine Industry • Advertising Sales are Down Sharply • - Advertising determines the fate of the magazine industry • - Sales are down for the second year in a row • Greater Pressure on Circulation • - Decline of sweepstakes marketing; new regulatory pressures on telemarketing • - Newsstand has consolidated to four wholesalers • Profit Margins have Eroded • Public Companies Have Been De-Valued • Highly-Leveraged Companies Are Scrambling • - Vivendi Universal • - AOL Time Warner • - Primedia • - Ziff-Davis • - Penton Media

4. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • M&A Activity Reflects Market Conditions • Transaction Volume is Down 17% • - $3.9 billion vs. $4.7 billion in 2001 • - Down an eye-popping 84% from 2000 ($3.9 bil. vs. $25 bil.) • Over-Leveraged Companies are Selling Properties • EBITDA Multiples are Down 20% • - Decline reflects advertising uncertainty, debt market • - Bloom off the Internet rose, which pushed up valuations in 1996-2000 • Dot-Com Bust has Destroyed Value in Two Ways • - Industry lost thousands of ad pages • - Lower growth prospects for a mature magazine industry without dot- com possibilities pushed valuations back to historic levels

5. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • How Publishers Are Adapting • Many are on the Sidelines, Not Actively Acquiring • - Consumer: Primedia, Gruner + Jahr, Time Inc. • - B2B: Penton, Primedia, VNU • Closing Unprofitable Titles • - Conde Nast: Mademoiselle • - Gruner + Jahr USA: Rosie • - Ziff Davis: Yahoo! Internet Life • - Hearst/Miramax: Talk • Cost-Cutting

6. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • Example: AOL Time Warner • Huge Write-Down • - $45 billion write-down (Jan. 29, 2003) • Stock Price • - $11.66 closing price (Jan. 31, 2003) • - 85% decline since merger was announced in Jan. 2000 • Debt Load • - Over $26 billion • - 3x EBITDA • Actions Being Taken • - Selling non-core assets: 8.4% of Hughes Electronics for $800 mil.; book publishing (Little, Brown; Warner Books); sports teams • - Cutting costs: Time Inc. to cut $100 million in 2003 • - Closing unprofitable titles: SI for Women, Mutual Funds

7. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • Example: Primedia • The Most Aggressive Buyer Became a Seller • - Stock price has declined from mid-30s to $2.58 (Jan. 31, 2003) • Transactions as a Buyer • - Cowles Media, $200 mil. (1998) • - American Trucker Group, $75 mil. (1998) • - Adams Meetings/Power Groups, $40 mil. (2000) • - About.com, $690 mil. (2000) • - EMAP, $515 mil. (July 2001) • Transactions as a Seller • - Bacon’s, $90 mil. (Dec. 2001) • - American Baby Group, $115 mil. (2002) • - Modern Bride, $52 mil. (2002) • - Chicago, $35 mil. (2002) • - ExitInfo, $24 mil. (2002) • - 6 smaller transactions (2002)

8. Mergers & Acquisitions The DeSilva & Phillips Report 2003 Top 20 Deals of 2002 • Property/Seller Buyer Price (000s) • Vivendi Universal Publishing/Vivendi Cinven, Carlyle, Apax $1,340 • Reiman Publications/Madison Dearborn Reader’s Digest 760 • Weider Publications American Media/Evercore 350 • Boron, LePore & Associates Cardinal Health 193 • Network Communications & Black’s Guide Gallarus/ABRY Partners 150 • F&W Publications/Citicorp Aurelian/Providence Equity 150 • Krause Publications Aurelian/Providence Equity 120 • American Baby/Primedia Meredith Corporation 115 • Modern Bride/Primedia Conde Nast 52 • Gardiner-Caldwell Thomson Corp. 45 • Key Media/TD Capital St. Joseph Corp. 40 • The Source Black Enterprise/Greenwich Street 40 • TriGenesis Comm./Quadrant Healthcomm MediMedia USA, Inc. 40 • Veranda Hearst Corp. 40 • Chicago/Primedia Tribune Co. 35 • HCPro Corp. The Riverside Company 35 • Hemmings Motor News ACBJ/Advance-Conde Nast 32 • Wiesner Publishing (80%) Dan Wiesner, et al. 30 • Dover Communications Boron, LePore & Associates 24 • Exit Info/Primedia Trader Publishing Company 24 • Source: DeSilva & Phillips M&A Database; DeSilva & Phillips’ transactions are highlighted in red.

9. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • Other Factors That Influenced M&A in 2002 • Lenders Played Havoc by Tightening Credit • - Banks tightened credit in response to bad loans • - Two years ago: 5-6x EBITDA; Now: 3-3.5x EBITDA • Emergence of Private Equity Targeting Media • - Collapse of telecom and technology investments • - Success of other PE firms with magazines (e.g., Petersen/Willis Stein, Ziff Davis/Forstmann Little) • - Only a few 10 years ago; today over 140

10. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • The Economics of M&A • Larger Enterprises Command Greater Value • - 42% premium for companies that sell for $25-100 million vs. those under $25 million • - 13% premium for companies that sell for over $100 million vs. those in the $25-100 million range • Example: • - Buyer acquires 2 companies for $25 million and 5 for $10 million • - Total purchase of $100 million • - Aggregated Value = $137 million (10.26x EBITDA of $13.32 mil.)

11. Mergers & Acquisitions The DeSilva & Phillips • Report 2003 • What’s Ahead for 2003 • Sluggish M&A Market is Slowly Improving • - Will follow rebound of economy • - Unless there is a war • Credit Markets are Loosening • Strategic Buyers are Cautiously Re-Emerging • Private Equity will Remain Abundant • Start-Ups are on the Drawing Boards Again • - Time Inc. has 6: Snap, Cottage, Haven and others • - Gruner + Jahr USA has 2: Flash, Wink • - Hearst has 2 new ideas • Multiples will Inch Upwards • - As demand increases and growth rates improve • - But, will not recover to levels of 1996-2000

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