Falconhead Capital Creates Sports Magazine/Events Platform
By Matthew Monks for LBO Wire
1/7/2008 – Falconhead Capital LLC is looking to bring some financial savvy to the burgeoning and lucrative triathlon world with a new magazine-publishing and events-coordinating platform.
The New York-based investor is making what one banker described as a classic enthusiast-media play with the recent purchase of three of the most high-profile companies in San Diego's tight-knit running and cycling community.
Falconhead Capital, which has a history of sports-related investments, paid an undisclosed amount for industry bible Triathlete Magazine, racing-events organizer Elite Running Inc. and Competitor Publishing Inc., which publishes a number of free regional fitness magazines under the name Competitor and manages a series of cycling and running relays around the country.
The companies, which were sold by a diverse group of separate owners, now operate under a platform called Competitor Group Inc., which runs endurance events in 16 cities that draw nearly 150,000 athletes a year, and publishes magazines with combined circulation of more than 500,000.
Financial details of the acquisitions and performance of the companies weren't disclosed. Falconhead Capital Chairman and Chief Executive David Moross said his firm bought the businesses at a "reasonable price point" given the burgeoning and fragmented nature of the endurance sports industry.
Enthusiast media properties -- or magazines, Web sites or events that cater to a small group of hardcore hobbyists -- have drawn intense private equity interest in recent years and are currently fetching multiples of six to nine times earnings before interest, taxes, depreciation and amortization, according to Thomas P. O'Connor, managing director with media investment bank Berkery Noyes & Co.
Buyout firms find them attractive because they generate steady cash flow from cult followers willing to spend big money on a range of products pertaining to their pursuit.
"People that love that market will spend in that market," O'Connor said. "Private equity has a lot of interest in enthusiast magazines and content, because you can surround it with shows and events and publications. If you are an enthusiast you are going to buy everything regarding [your hobby]."
With this deal, Falconhead Capital is following a well-worn strategy pursued by Wind Point Partners, The Wicks Group, and Spectrum Equity Investors. Those firms in recent years have built multimedia platforms in paint-balling, baseball-card collecting, and horse racing, among other things.
O'Connor said Falconhead Capital appears to be the first investor to make a buy-and-build play in endurance sports, which Moross estimates is a $1.3 billion industry with a demographic that advertisers long for: 25-to-54 year olds with an average household income of $75,000 to $95,000 a year.
He said triathlons and marathons have been moving into the mainstream in recent years as more people take an interest in their health.
Moross said the fast-growing endurance sports industry has been dominated, until now, by fanatical pioneers whose primary mission has been to advocate the sport rather than make a lot of money. Moross sees this deal as a chance to do both by ramping up Competitor Group's advertising and sponsorship efforts while adding new races.
Competitor Group's races currently have few sponsors, generating most of their revenue via $75 to $100 entry fees. The firm sees a chance to secure sponsorships with big-name advertisers by packaging deals to underwrite races while securing ad pages in the company's magazines. Marathons have caught the eye of big-name advertisers in recent years, with LaSalle Bank Corp. and ING Groep NV backing races in Chicago and New York, respectively.
Falconhead Capital plans to extend Competitor Group's reach by starting up and buying more race events around the country, giving it further scale.
On the print side, he said Competitor and Triathlete Magazine are largely insulated from the advertising woes facing the overall print media, because 90% of their sales comes from endemic advertisers, or those hawking niche products of interest to a highly concentrated audience. These types of advertisers tend to keep their ad pages constant regardless of swings in the economy because they have no other way to reach their consumers.
The firm has tapped veteran media and trade-show executive Peter Englehart to serve as Competitor Group's new chief executive. Englehart, who has been a Falconhead Capital operating partner for three years, was previously the founder and president of the Convention & Trade Show Television Network LLC, senior vice president of programming and production for the Outdoor Life Network, and director of program planning for ESPN.
Falconhead Capital's other sports-related investments include Canadian gym chain Extreme Fitness Inc. It previously owned golf retailer Golf Warehouse and European sports network ESPN Classic Europe LLC. The firm closed its $290 million Falconhead Capital Partners II LP last year.