Veronis Taps New Fund For Three Investments –

Media-focused private equity firm Veronis Suhler Stevenson has been working overtime and the fruits of the buyout shop’s labors have been witnessed over the past two weeks. In the midst of raising its largest fund ever, the New York-based firm completed the acquisition of two new platform companies while simultaneously announcing an agreement to buy KEDJ-FM, a radio station serving Phoenix, Ariz., which will be the first building block of yet another portfolio company called Riviera Broadcast Group. In the meantime, Veronis sold one of its publishing companies to Apprise Media LLC in a secondary transaction valued at more than $200 million (see story on page 9).

Just The Facts

Late last month, Veronis acquired Facts On File Inc., a publisher of print and online reference materials for schools and libraries. The company was purchased from fellow New York buyout shop, Exeter Capital Partners, which has held Facts On File since 1999, according to a source close to the transaction. Financial terms of the deal were not disclosed.

To provide equity for this deal, Veronis christened its fourth private equity fund, VSS Communications Partners IV LP, which is still seeking limited partner commitments to meet its $1.25 billion target. Chris Russell, a managing director at Veronis, declined to comment on how much the fund has raised to date and when a final close could be expected. According to a Form D filing with the Securities and Exchange Commission, Veronis had raised $221.5 million in commitments as of March 15, 2005.

To finalize the capital structure of the deal, Russell said that Veronis is bringing on incremental debt from an undisclosed lender after it bridged the financing to get the deal closed. Veronis also assumed and undisclosed amount of existing debt from the company.

New York-based Facts On File was founded in 1940 and publishes print and electronic encyclopedias, dictionaries, atlases, chronologies, almanacs and biographies. The company’s products are published under three imprints: Facts On File, Checkmark Books and Ferguson Publishing, the latter of which was an add-on made by Exeter in 2002. According to Russell, the company’s 9,000-plus customers are mostly school and public libraries, which are solicited through direct mail.

“In a casual way, we have been studying and trying to invest in educational publishing for a number of years. We’ve been looking for a platform and [Facts On File] made sense; it’s got great management, a customer base that can be built on, and most importantly, a lot of opportunities to make future add-ons-that’s what our company is all about,” Russell said.

Facts On File was no stranger to Veronis. Some at the media-focused firm have known Facts On File’s CEO, Mark McDonnell, personally or professionally, for up to 15 years, a factor that helped Veronis win the Berkery Noyes & Co.-run auction that started in late 2004, Russell said. McDonnell has retained his ownership interest in the company and his management team will continue to operate the business in partnership with Veronis.

One priority for Veronis, Russell said, is to accelerate the company’s transition into the electronic market, which it has been easing into for the past several years. The firm also intends to add to the company’s print catalog.

“Education publishing is a long-term, viable market place. Education will always be a priority for government support,” Russell said. “There will always be libraries and schools. Though they may eventually change the way they deliver content, the market for it will always exist.”

When the time comes, the divestiture of Facts On File will likely go one of two ways. “Typically we buy a platform and add to it with the intention of attracting strategic buyers,” Russell said. “But given the good health of the secondary market, an exit to another financial buyer is an option, too.”

VSS Also Makes It To The Silver Screen

Just in time for the onslaught of summer movies, Veronis acquired Southern Theaters LLC, a developer and operator of multiplex stadium-seating movie theatres, in a deal that included roughly $20 million in equity, Trent Hickman, a director at the New York-based firm told Buyouts. Per terms of the deal, Veronis agreed to invest an additional $30 million in growth capital funding in the company throughout its holding period.

Headquartered in New Orleans, Southern Theatres currently operates four movie theaters-three of which opened just last year-in Louisiana and Mississippi and has a combined total of 56 screens. The company also has two 14-screen theaters scheduled to open sometime next month. The growing chain was formed in 2002 by movie theater veteran T. George Solomon, Jr., who, along with Enhanced Capital Partners and other Southern Theatre shareholders, will retain his full equity interest in the company and will invest alongside Veronis.

Southern Theatres targets underserved suburban and exurban areas with small- to mid-sized populations of 150,000 to 400,000 people that-in most cases-have not previously had theaters with stadium seating. “These smaller areas are less likely to attract competition from the larger stadium theater operators,” Hickman said. He added that Southern Theatres has a 50% to 80% market share in each of its operating locations.

Veronis plans to use Southern Theatres as a platform for future investments. “George Solomon and ourselves are both going to be investing to develop additional locations with the goal of having 20 to 25 theaters with [a combined total of] 250 to 300 screens across the Southern U.S.,” Hickman said. “We already have definitive plans for another seven [theaters] to open in the next 12 months.”

Veronis will likely hold Southern Theatres for four to six years, at which point the most likely option will be to sell to a strategic buyer or another financial investor, Hickman said. Southern Theatres is a portfolio company in VSS Communications Partners IV LP.

A media-focused firm, Veronis had been looking at the movie theater industry for years, waiting for an opportune time to jump in. The buyout shop first uncovered Southern Theatres in late 2004 and engaged the company in Jan. 2005, according to Hickman.

“The [movie theater] industry itself just recently recovered from a period of overexpansion that occurred in the late 90s and early 2000s,” Hickman said. “That was a period when there was a lot of leveraged buyout activity in the industry that just happened to coincide with the shift from sloped floors to stadium seating. The people that participated in those buyouts faced a conundrum because they were forced to upgrade their assets, which put their cash-flows under fire since they were already highly levered.”

Things have since cooled down and the industry has stabilized, Hickman said. Areas that were once overexposed have naturally weeded out the weaker theaters and the growing population of moviegoers has strengthened the survivors.

“If you look at attendance trends over the last 30 to 40 years you’ll see a general increase in moviegoers over every five year interval,” Hickman said. “You don’t have a Star Wars or a Titanic coming out every year, so yearly attendance can fluctuate depending on the quality of product that hits the market, but the overall trend is positive.”