July/August 2004
Will Cygnus’ vertical market strategy pay off?

In B2B, integration is the name of the game. Cygnus hopes to win by developing vertical markets online, in print and in person.

By Dawn J. Grubb



When Paul Mackler, President and CEO of Cygnus Business Media, sealed the deal to acquire eight construction industry shows from Cornerstone Expositions in February, it was simply the latest strategic move in a carefully executed plan to develop integrated media products for vertical markets. Four years ago, the company had 17 shows and conferences, 48 magazines, 17 custom publications and 60 Web sites. Today, Cygnus boasts 66 trade magazines reaching more than 3 million professionals; publishes seven industry directories; manages 58 Web sites read by more than 2 million professionals annually; produces 12 custom marketing publications and produces 52 exhibitions a year.

Mackler had been eyeing the Cornerstone shows for some time, having once before tried to acquire them. Cygnus was outbid, however, by Cornerstone. So when Mackler heard the shows were once again on the market, he couldn’t have been more pleased. After all, they were perfect for the company’s growth strategy. Already Cygnus reached nearly 500,000 building and construction professionals every month through its construction-related magazines and Web portals. So, what could have more synergy for the company’s portfolio than Cornerstone’s eight CONEX shows? This time, Cygnus prevailed.

While other media companies stagnated, Cygnus’ aggressive growth agenda included 14 acquisitions and 12 product launches. Indeed, the past four years have been kind to Cygnus, helping Mackler and his seasoned executive team position the company as a diversified B2B leader whose revenues have climbed 7 percent which equates to 35 percent revenue growth (EBITDA growth of 60 percent) since 1999. Credit their strategic vision of building a well-oiled integrated media firm that serves 15 diverse industries ranging from aviation to vending equipment and services. Cygnus’ goal: Be the leading diversified media company that provides print, shows and interactive in every market it serves.

While an entrepreneurial spirit and business savvy — not to mention plenty of financial backing from Boston-based private equity firm ABRY Partners LLC — have team Cygnus poised for success, some industry analysts warn that there’s still turbulence ahead. Although Cygnus has enjoyed a number of successful acquisitions and launches in niche markets, some experts say the reality is the company lacks properties that offer adequate scalability and yield larger profit margins.

Partnering to win
All businesses reflect their leaders’ unique skills and experiences, and Cygnus is certainly no different. Mackler “cut his teeth” on the integrated marketing concept in 1984 when he teamed with mentor David Cheifetz at CMC, a company that produced magazine-sponsored trade shows. Cheifetz taught him two key lessons: how integrated marketing best meets customers’ needs and how to run a small, entrepreneurial company. Eleven years later, Mackler joined Reed Exhibitions’ North American division, learning how larger firms operate. “It really got my confidence up to go out on my own,” he says. “I saw an enormous opportunity in the marketplace to create a diversified B2B offering that’s valuable to customers.”

Teaming with ABRY in 2000, Mackler shelled out $275 million for Cygnus Business Media and restructured the firm into four distinct divisions: Cygnus Expositions, Cygnus Publishing, Cygnus Interactive and Cygnus Custom Marketing. Each is guided by a seasoned veteran whose background plays a pivotal role in its success. For example, Publishing President Richard Reiff worked both as an advertiser and salesperson for an agricultural equipment manufacturer and publisher; Expositions President Jeff Price served inside and outside the industry for service-oriented companies (Norwegian Cruise Lines, Reed and RCA). Both executives credit the company’s growth and success to Mackler’s vision of creating an integrated media firm that delivers customized services. Their thought: No two customers are alike, so every integrated solution must be tailored to meet specific needs. “We don’t take a cookie-cutter approach,” insists Mackler, “we look at that market to determine how best to serve our customers.”

This might include booth space, event sponsorship, advertising and reprints. Customers can also leverage Cygnus Publishing’s editorial, design and production expertise — as well as its valuable circulation database — with a customized newsletter or magazine marketing piece. Interactive offers such online marketing opportunities as custom Web sites and portals, pop-up ads and e-mail blasts. What’s more, customers can even take advantage of Cygnus’ vendor relationships. “We get maximum miles out of our customers’ advertising dollars,” explains Reiff. “Because we’re a large print buyer, we can negotiate cheaper rates. Customers can print four-color pieces to hand out at events. Our supplement business grew by 300 percent during 2002-2003.”

Integrated package pricing varies, depending on the customer and industry, explains Price. Exhibitors receive discounts for advertising in Cygnus trade publications; advertisers receive discounts for exhibiting. Sometimes customers receive “points” — discounts they can use toward a future event. The bottom line: Customers are rewarded for doing business with Cygnus.

Successful integrated marketers fully understand their customers’ unique challenges and offer customized solutions. “You have to keep it fresh,” explains Reiff. “Customers are looking for ways to grow their businesses and differentiate themselves in this economy where competitors offer the same thing. They want marketing advice, inside information and our opinions of emerging trends. Because we serve so many sectors, we can suggest new markets they can tap. That’s a valuable offer.”

Bob Crosland, Managing Director, AdMedia Partners, a New York media investment banking firm, says Cygnus is “counter culture” to other major B2B players. “They’re going against the grain,” he says. “They have a diversified portfolio of smaller revenue streams, while others move toward larger streams. But Cygnus has embraced this business model, and they have to make it work.”

Richard Mead, Managing Director, The Jordon Edmiston Group, a New York investment bank, agrees that Cygnus is on the right track and predicts that only those companies that offer a cross section of marketing opportunities will succeed in the long term. “The real advantage is scale, both in their internal operations and valuation,” he says. “They’ll have the ability to add products to existing business platforms.”   

Growing pains and gains
Like many B2B companies, Cygnus felt the pain when the economy took a nose dive and was forced to change or delay some strategic plans. While terrorism fears and travel concerns pummeled the show industry’s attendance, Cygnus Publishing’s ad revenue fell 3.5 percent in 2001 and grew slightly in 2002 by 3 percent. This was at a time when according to American Business Media, advertising revenue was down on average 35 percent across the industry. Cygnus executives pride themselves in the fact that the company grew during this decline, never losing focus of goals. “We didn’t take any draconian measures or have massive layoffs,” says Mackler. “In fact, we’ve added people.” Cygnus has grown from 450 employees in 2000 to 640 today. He credits the good fortune to three things: Cygnus’ strong market diversification, strong market positions and revenue diversification. “We also have great people. I know that’s a cliché,” he says, “but we have a great management team and staff. This helps get you through rough times.”

Mackler and team set three ground rules for containing costs: They couldn’t affect customers, employees or product quality. Instead, they eliminated waste and inefficiency. For example, they shut down their offices during slow times (typically extending holidays; for a total of about two weeks) and gave everyone unpaid leave to prevent layoffs. They cut sales reps’ travel and entertainment budgets by 50 percent in some cases, ensuring more efficiently scheduled business trips.

“We’re vigilant about our cost structure. We’re always looking to improve efficiency and business processes,” says Mackler. “We work smart and invest slowly in disciplined measures.”

Cygnus Publishing enjoyed numerous successes, thanks in part to its market positions. Nearly 83 percent of Cygnus magazines and trade shows hold the top spots in their respective markets. While 9-11 took an immediate toll on the Aviation & Transportation Group, it’s since rebounded and now boasts one of the highest margins in the company.

Repositioning poor-performing titles has also paid off big. In 2003, Publishing repositioned and redesigned Fleet Maintenance, budgeting to lose money the first year. Instead, the book saw a $350,000 profit. Six years ago, Reiff hired Kathy Schneider, Group Publisher, Photography & Imaging Group, away from a competitor to breathe life into the fledgling Studio Photography. Schneider brought on a new staff and gave the magazine a complete editorial and design makeover, rebranding it as Studio Photography & Design. Today, it’s No. 1 and has spawned PhotoImaging & Design Expo and three custom projects. Plus, a portal’s in the works.

“We’ve turned it into a vibrant product that’s really added to our portfolio,” says Reiff. “In 1997, it was bringing in less than a million annual revenue. Today it’s more than $2 million and growing.” Overall, Cygnus Publishing added 78 percent to Cygnus’s bottom line last year.

Cygnus Expositions has also watched numbers soar. The division once employed 30 people who managed 13 events. Today, 100 people oversee 52 shows.

While the economy caught some shows off guard, Cygnus was on its toes and aggressively pursued competitors. Price notes that new launches in its Fire Rescue & EMS, Aviation & Transportation and Agriculture & Food groups have either greatly hindered or completely eliminated competing shows. “It comes down to smarter, better marketing and selling,” he says.

Francis Friedman, President of Time & Place Strategies Inc., a New York business development consultancy, points to Cygnus’ executive team as the catalyst for success. It’s a direct result of the team’s poise, expertise and passion, he says. “They love the business and they’ve been through lots of ups and downs. That goes a long way in maintaining poise,” he notes. “It’s that level of maturity and enduring past economic cycles that have helped them through these past three years. And it will be important going forward as they build a solid platform for investors.”

Successful integrated marketing companies build portfolios with quality products and then add secondary properties — either through acquisition or organic growth, such as launching a show, e-newsletter or Web site to supplement a magazine. It’s a way of thinking that very few in trade shows understand, Friedman says, but Mackler and team do.

Making it work
When Mackler bought Cygnus in 2000, the Fire Rescue & EMS Group was in sad shape organizationally. If you logged onto firehouse.com, you wouldn’t see any mention of Firehouse Magazine or the Firehouse Expo. Visitors had no way of subscribing let alone registering for the show. A lack of communication and proximity — all properties were located in different states — led to dysfunction and lack of cooperation. Mackler decided to set a company example with the group.

First, he forced a culture of collaboration between Cygnus Publishing and Cygnus Expositions by firing those who didn’t embrace the cultural change toward teamwork. Next, he established cross-promotional activities and policies for all products, which encouraged divisions to develop joint marketing and sales campaigns and work toward a common goal. Then he corrected poor performing products.

The San Jose-based Fire Rescue West Show was losing money while its East Coast counterpart thrived. Mackler relaunched the show in Southern California with a new focus and brand, Firehouse World Expo. Today it’s 85,000 net square feet, twice the size of the previous show, and attendance has doubled. What’s more, the group launched Firehouse on the Road, a mobile hands-on training series that serves attendees in demographic areas that the other shows don’t. After two years, Mackler’s transformation was complete, and the Fire Rescue & EMS Group became the Cygnus model of collaboration. “Revenue has doubled. It’s our greatest success story,” beams Mackler.

Outsiders like Friedman, who helped Cygnus’ founders with the Fire Rescue West acquisition, applaud the success. “When I handled the transaction, there were a series of opportunities. The first owners couldn’t convert because of staffing and resources, but Paul’s team has done a great job capitalizing and converting those opportunities into marketplace reality. They now have great leverage on that property,” he says.

Cygnus executives believe their business model works because divisions strictly adhere to the three Cs: communication, cooperation and collaboration. “You must decide how best to organize your company to serve customers. We’re not necessarily doing it ‘right,’” says Mackler. “There are many right ways, depending on your culture and product mix. We’ve simply broken down all internal barriers that limit communication and cooperation and forced collaboration.”

When Cygnus’ 140 sales folks visit customers, they focus on building a relationship rather than making a sale. “We want to know what makes them sit bolt upright in bed on Sunday night so we can offer solutions and grow their businesses,” says Reiff. “We often know more about our customers’ customers than they do. This knowledge is power.” The divisions share information during annual planning sessions, helping editors and trade show managers develop high-impact content.

Such was the case when Publishing and Expositions worked together to co-locate aviation shows Ground Equipment Support Expo and AS3 in Las Vegas last year and rebrand the event as Aviation Industry Week. Price says participants loved the new focus, which has boosted this year’s numbers: “It’s grown 15 percent; ancillary sales, such as Web packages and sponsorships, are up 27 percent; and international participation has doubled. “It’s beyond my belief what bringing everything under one roof has done for this industry,” says Price. “We’ve made it more cost-effective and efficient for our customers.”

Looking ahead
Mackler’s ideal revenue mix breaks down to 40 percent from publications, 30 percent from shows, 20 percent from custom publishing and 10 percent from interactive. While not quite there, Mackler says Cygnus is on its way. Ten years ago, publishing made up 100 percent of Cygnus’ business; today it’s about 78 percent. Expositions make up 15 percent, custom marketing brings in 3 percent and interactive accounts for 4 percent of the company’s revenue. Obviously, there’s still work to do.

“Our vision is the same as it was in 2000: Be the leading diversified media company that provides print, shows and interactive in every market we serve,” says Mackler. “We only have shows in about half of our markets, we don’t have custom marketing in all, and we’d love to have a commanding position online. Overall we’re making great strides.”

Cygnus maintains two leading Web portals, with plans to launch others in the next few years. Strategic acquisitions have added lucrative regional shows to the company’s Industrial & Manufacturing and Construction Equipment portfolios, including last year’s purchase of Penton’s Professional Trade Shows and Vulcan’s in 2002, which netted 40 total properties. “We like regional events because they can be cloned in other markets,” says Price. Last year the division launched the industry’s largest nontraditional trade show, the Iowa Farm & Field Fest, bumping Cygnus’ total agriculture show offering to seven.

“Our growth plan centers around acquisitions and launches, but we won’t add shows just to grow,” he says. “We’ll take a look at each industry to see whether there’s a need.” Later this year, Cygnus will launch shows in the kitchen and bath, jewelry and security industries.

But experts question whether smaller, niched growth will yield adequate profits, especially given that equity partner ABRY will look for a timely return on its $275 million investment. Analysts say investors generally seek a 25 percent to 30 percent return. If it takes about seven years to fully recover from a recession, this doesn’t leave Cygnus much time to perform. Mackler and team may be forced to rethink their game plan.

“I agree with their strategy of buying strategic acquisitions, but groups of businesses in certain sectors could take them to $130 million very quickly,” says Jordon Edmiston’s Mead, who’s worked with Cygnus on a number of acquisitions. “Their challenge will be to grow as quickly and profitably as they can.”

Crosland agrees but says that some of Cygnus’s markets, such as Ink Maker, Frozen Food Age and Locksmith Ledger International magazines, will never be adequate in scope and scale to have high margins. “They’ve added strategic products to their mix, but they need bigger revenue streams. They paid a high price when they bought the base company, and it’s hard work to scale up,” says Crosland. “They’ve moved purposefully and strategically toward surrounding their markets with lots of little magazines and shows. This isn’t bad, it’s just harder. More moving parts mean you have to be better managers.”

Competition remains another obstacle. Crosland notes that more B2B companies are integrating, creating a challenge in gaining market positions. “It’s the way of the business. Once you’re plugged in, you find a way to extract as much money from customers’ pockets as possible. Smart companies recognize when someone is entrenched in a market and know better than to go head-to-head,” he says. “With all the prime positions taken, growing organically or finding emerging markets are the best ways to grow.”

Mackler’s confident with the Cygnus business model, though, and he says ABRY — which has no immediate exit plans — has been a supportive partner. The Cygnus team continues to make strategic investments and work toward providing customized services. “I’m not a one-person army,” says Mackler. “I’ve surrounded myself with great people. I give them vision, direction and support, and then get out of their way.” And this just may be what pulls Cygnus through. Says Crosland: “They have some really bright guys running Cygnus, and they’ve done some smart things given what they started with. They’re the second wave to put their arms around Cygnus and continue its transition to integrated marketing. Only time will tell if they’re doing it right.”

Dawn J. Grubb is owner and president of 24/7 Communications in Westwood, KS. She can be reached at dawn@24-7comms.com.