Buying into the South Carolina business news market

TALKING BIZ NEWS EXCLUSIVE

Fred Russell, the managing director of Richmond-based Virginia Capital Partners, now controls a huge chunk of South Carolina business news.

Last week, Virginia Capital purchased the Charleston Regional Business Journal, GSA Business, the Columbia Regional Business Report and SCBIZ magazine for an undisclosed amount. The South Carolina business publications had been owned by Brown Publishing, which had gone through a Chapter 11 bankruptcy court reorganization earlier this year.

Virginia Capital is also an investor in Virginia Business, a monthly business magazine.

Virginia Capital Partners provides capital and strategic assistance to growing businesses in the South Atlantic region. Founded in 1996, the private investment group has invested in more than 35 companies.

Russell, who has been managing partner of Virginia Capital since its inception, talked by phone Monday afternoon with Talking Biz News about the transaction and his interest in business news publications. What follows is an edited transcript.

How did Virginia Capital get interested in these papers?

We first got active in publishing in the demise of the Internet bubble when at that time it was the deepest ad recession since the Great Depression. Media properties were trading at huge discounts. We got involved with a company that published called Physician’s Practice at a very attractive price. Our belief at the time was that print wasn’t going away, that the Internet would be an important mix, but a demographic would be interested in a print product. We built that product up and sold that to United Media in 2007.

Through that experience, we became convinced that the current ad draw down was similar. Some media properties took on too much leverage and were looking for a home for some of their assets. We bought Virginia Business from Media General in September 2009. It was a title that was well known within the state. It has a great brand and has been around for 25 years. We believe that as the ad cycle turns around, that it will improve.

What we saw in South Carolina was a similar set of properties in an challenging ad market. We are partners with some great people. They have a real focus on unique content, which we think is the key to any media strategy, whether it’s online or in print. You have to have some unique strategy with content, and they have a great staff making content every day. It’s highly local, which the national media can’t cover. And they are localized in ad creation as well. And it’s a great brand. We love the South Carolina market.

What’s the business outlook for these papers? Has the ad market hit bottom?

We are agnostic to the outlook. Our hold period is indefinite, and as a result we don’t when the turn will come. We bought the business for cash, so there is no leverage on it. When you have a long enough hold period and there is no leverage, you hold yourself up to be successful eventually. My feeling is that the turn isn’t there yet. The decline seems to have slowed somewhat. But I don’t think the turn has come yet in real estate advertising.

Does Virginia Capital have an interest in acquiring other business newspapers and magazines?

Yes, wherever we can find great content that suits a unique market that is difficult to replicate and they target a very local niche. Absolutely we’re interested. A lot of the difficulty in today’s market is that you have a lot of news sources that are just replicating the wire services. My sense is that their days are not long. We’ve looked at some newsletters, some weeklies, some B to B.

How much did your investment in Virginia Business play a part in this deal?

I don’t know that it played a really big role. It’s another asset in the portfolio. We like to have about 25 percent of our portfolio in the media business. We sold off a lot of our media properties in 2007 and 2008. Virginia Business was our first new media investment, and the South Carolina business deal is our second. We would hope to add a couple or three more that are filling a niche.

Why South Carolina?

South Carolina is a great market. It’s a beautiful place, and we think it’s going to come back. It will be an interesting time in publishing as some of these conglomerates put some of these properties on the market and entrepreneurs take the helm.

As a business person, what’s your opinion of local business news as compared to business news from The Wall Street Journal?

It depends. There are large national news sources that I won’t name that are nothing more than television news watered down. I wouldn’t pick them up if they were offered for free. But The Financial Times and The Wall Street Journal do a great job. And there are tons of unique local news sources that provide a great perspective. We get a lot of our data from blogs that cover a specific market. In some cities in which you have a sleepy daily newspaper, the blogs do a much better job. A lot of these nimble competitors do just fine.

Do you read The Business Insider? [Founder Henry Blodget] frames it in a way you just don’t get in a lot of other news sources. There is someone who has taken national news where you get an edge. I don’t know if would go there to read something detailed or analytical, but it’s pithy and hilarious. There are a lot of opportunities like that. I spend more of my time on the news that I get in my Google reader feed where I select the content that I get.

How long does Virginia Capital intend to hold onto the South Carolina papers?

I think this time it will be a long time. I think there are some structural problems with the economy that will prevent any near-term liquidity event. We almost never think about an exit strategy. If you own a great business run by great people, the exit strategy finds you. This time, it will be a longer hold period. I would be shocked if it wasn’t seven or 10 or more years.

What are the growth plans for these publications?

They do some event business that has proven to be reasonably attractive. They have some content that is related to the core publications. In the short time, we’re going to focus on delivering the core product. But in the medium term, we’re going to find some related content that we can expand on and on the long term find some new markets. At the end of the day, we  only get a return on our investment if we grow the business.

You live in a city, Richmond, where there is no weekly business newspaper, but there is a site RichmondBizSense.com run by one of my former students, Aaron Kremer. Have you ever thought of starting a business paper there?

The problem with Richmond is you have the Richmond Times-Dispatch that has a Monday metro business insert that is there attempt at doing a weekly business paper. I think it could be done here. As you know, Blue Ridge Business Journal closed in the Roanoke market. I think it would be very tough to do de novo in the current economy. But if you had someone with Kremer’s talent and ambition, you might have a core to build on.

But I don’t think I would want to start one today in this economy. Richmond is a tough market. My sense is that Raleigh is a much more vibrant market with new companies and VC investment. You can really get an edge by focusing on that type of content. Richmond doesn’t have that entrepreneurial backbone and you see the weeklies focus on that kind of content.

I told Aaron I thought there should be other markets that he should be looking at. He’s done a good job of it. He’s got his own angle in creating content that is very intriguing.