Facing skepticism that it overpaid for a magazine publisher, will a young private equity firm find a profitable exit strategy?
Case A of this two-part case takes place in the fall of 1996, when Avy Stein was conflicted about his young private equity fund’s purchase of magazine publisher Petersen Publishing. While the deal had established his $343 million fund, he feared his firm had fallen victim to the “winner’s curse” by outbidding other suitors. Stein had convinced his backers that the firm’s reported EBITDA understated its profitability. Yet given that none of Petersen’s other suitors aggressively bid for the publisher in 1996, Stein was concerned about an exit strategy for the investment and the ability to drum up interest from those same suitors in the future. In this case students consider Stein’s options after reviewing Peterson’s financials, other LBO deals and competitive data from the magazine industry. Case B follows up on Petersen’s situation five years later. Stein’s company has now made ten times its money back and Petersen, again up for sale, is purchased by special interest publishing company Primedia.
Case ID: 080320