Source Interlink, a major U.S. distributor buys Primedia titles

Source Interlink, one of the biggest magazine distributors in the United States, has purchased the enthusiast group from Primedia in what industry observers describe as "a stunning development". The effect is to transform a supplier into a major player in media, virtually overnight. (The equivalent would have been if Disticor or Coast-to-Coast in Canada has suddenly acquired the consumer magazines of Rogers Media.) An online story from Folio: magazine, written by its editor Tony Silber, said the deal was cinched with US$1.2 billion in cash. [A brief story also appeared in MediaDaily News.]

Source Interlink has been on an acquisition tear in recent years, mostly in its own chosen field; for instance, it bought Buffalo-based Empire News in 2004 and its purchase of Charles Levy Circulating Company in 2005 brought it to 20% of all single copy sales in the U.S. Based in Bonita Springs, Florida, the public company, also distributes DVDs, music CDs, and books as well as magazines and generated about $1.9 billion in the year ended January 31.

Primedia Enthusiast Media (PEM) is the leading special-interest magazine publisher in the U.S., with over 70 magazines, including: Motor Trend, Automobile, Hot Rod, Lowrider, Soap Opera Digest and Soap Opera Weekly, Power & Motoryacht and, Surfer and Snowboarder.

Source Interlink is controlled by Yucaipa Cos., a supermarket-holding company owned by billionaire businessman Ron Burkle. Last week, Folio: reported that insiders were saying the Burkle bid was coming on strong, although one source told Folio: the Burkle bid (mentioned to be in connection with American Media) was not being taken seriously. “It is a stunning development that a publicly owned distribution company controlled by Ron Burkle is buying one of the largest portfolios of enthusiast magazines,” one source said Monday morning. “It’s shocking. The valuation is significantly higher than they would have gotten from others.”

Indeed, Source Interlink also paid significantly more than sources in the last few weeks indicated the company might get. PEM, with revenue of about $524 million and EBITDA of about $100 million, turned out to command an EBITDA multiple of about 12-times.

To fund the acquisition, Source Interlink has secured a financing commitment from Citigroup Global Markets. It was unclear at presstime whether American Media was involved.

“Over the last several years Source has driven the consolidation of a fragmented and inefficient channel for the distribution and merchandising of home entertainment content at retail and the newsstand,” said Source Interlink chairman Michael Duckworth. “This acquisition is a first step to leverage what we have built by transforming Source into a fully integrated media company with both print and digital content. Primedia Enthusiast Media's industry-leading special interest magazine titles and consumer Web sites diversifies our earnings streams and accelerates our growth.”

Following the completion of the transaction, PEM will operate as a division of Source Interlink and will be headed by Steve Parr, PEM’s current president. He will report to Duckworth.