Reiman Publications, Inc., acquired by Madison Dearborn Partners Inc. for roughly $630 million in 1998, will be purchased by Reader’s Digest Association, Inc. for $760 million in cash, the companies announced today.
The deal, reportedly one of the largest seen in publishing, is also a major database transaction.
“Reiman is really a direct marketing company,” said Claire Gruppo, president and managing director of Gruppo Levey and Co., which represented Reiman and Madison Dearborn in the deal and introduced the two sides last year.
Reiman, which publishes such magazines as Taste of Home, Country and Country Woman. has annual revenue of more than $300 million, and has been sustaining yearly growth of around 12%, Gruppo said. It has a customer file with 32 million customers, including 16 million readers, compared with 50 million for Reader’s Digest.
The two databases have a 19% duplication factor and are ripe for cross marketing, added Justin Riddell, an associate at Gruppo Levey.
However, the acquisition was opposed by Highfields Capital Management, a large Reader’s Digest shareholder, which unsuccessfully sought a buyback of shares earlier this month.
Reader’s Digest CEO Thomas O. Ryder said in a statement today that the firm’s board “voted to proceed with the Reiman acquisition because it believers that it is in the best interests of the company and the stockholders.”
According to Ryder, Highfields feels that “stockholders would be better served through combination of stock repurchases, managing the U.S. business for cash and possibly asset sales. They also advocate a recapitalization of the company to create a single class of voting stock.”
Expected to close by June, the Reiman deal will contribute $70 million in EBIDTA, according to Reader’s Digest. And it will reduce the percentage of revenue coming to the firm from sweepstakes promotions.
It will also create synergies between the product lines.
The two audiences are similar in that they are “family oriented and have traditional values,” Gruppo added.
However, the Reiman readers are younger. The median age is 55 to 60, compared with 65 for Reader’s Digest. And 85% of the Reiman customers are female, whereas Reader’s Digest is more skewed toward males.
In the short term, Reader’s Digest will probably study “the Reiman formula, and the response rates they get for their direct mail without using highly promotional techniques,” Gruppo said.
Joined with QSP and Books are Fun, the Reiman line will help generate about $1 billion in sales, according to Reader’s Digest. Reiman can also take advantage of its new owner’s international reach to market its titles overseas, Gruppo added.
Reiman does not accept advertising in its magazines, preferring to make money on direct mail subscription and product sales.
Meanwhile, Greendale, WI-based Reiman will remain intact, according to Gruppo. While there will be some efficiencies gained in the paper and printing areas, these were not the reason for the transaction, she added.
“This isn’t an integration-consolidation play–it’s a growth play,” Gruppo said. “Reiman can’t cut out a lot of fat.
The transaction is being funded by J.P. Morgan and Goldman Sachs. Reader’s Digest was advised by Veronis Suhler Stevenson and Goldman Sachs. J.P. Morgan provided a “fairness opinion” to the Reiman side.
Gruppo Levey repped Madison Deaborn in 1998 when it acquired the primary interest in Reiman. And last August, although there was no intent to sell at that point, Gruppo Levey introduced the Reiman people to Ryder and his staff.
“We said, ‘you guys ought to know one another,'” Gruppo said.
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