IDG Inches Toward IPO of Net Properties

The tech-publishing giant is close to announcing a spinoff of its online properties.
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SAN FRANCISCO -- International Data Group, a low-key, yet powerful Boston-based media conglomerate that owns a raft of computer magazines, a research firm, a conference unit and the "For Dummies" book publisher, is getting IPO fever.

The company, a privately-held entity except for its

IDG Books Worldwide

(IDGB)

unit, will announce in coming weeks a plan to roll up all of its online properties into a giant Web portal for computer information. The move comes in preparation for an initial public offering later this year, say employees who are involved in creating the venture.

What's more, IDG is considering another spinoff, this one for

The Industry Standard

magazine and Web site, which would then be brought to the market in a separate public offering, according to staff members who attended an off-site meeting of the magazine Monday evening. Officials at the

Standard

declined to comment. IDG didn't return phone calls for this story. (

The Industry Standard

is an editorial joint-venture partner with

TheStreet.com

.)

Patrick McGovern, the company's 62-year old founder and chairman, said earlier this spring that IDG might spin off four or five IPOs in 1999, but recent developments suggest that the IPO for IDG's online properties has been put on the front burner. The other possible IPOs include research arm

International Data Corporation

and computer training firm

ExecuTrain

.

"There's high anxiety to get this thing rolling forward," said Mac McCarthy, president of

Web Publishing Incorporated

, one of IDG's biggest online properties that operates

JavaWorld

and other Web zines focused on the information technology market.

"They're pretty hot to go public," said another high-ranking employee of an IDG magazine. "I think you'll see an increasing amount of money going into their Web operations."

A Boring Business Seeks New Growth

Along with

Ziff Davis

(ZD)

and

CMP Media

, IDG is one of the world's largest publishers of computer trade publications. In addition to the flagship magazine

PC World

, IDG publishes

Macworld

,

Network World

and

Computerworld

. But while Ziff and CMP, which was recently acquired by Britain's

United News and Media

for $920 million, have focused on the domestic market, IDG has aggressively attacked the international market, cloning its magazines across the farthest reaches of the globe. Right now, IDG says it publishes 290 computer-centric magazines and newspapers, including an edition of

Computerworld

in Antartica and

PC World Greenland

.

It's not the sexiest business in the world, but it's darn profitable. Adding the magazines in with the book unit and the conference arm, IDG's revenue last year was $2.35 billion in 1998, an increase of 15% over the previous year. But company executives, realizing that the computer-magazine business is reaching maturity, are looking for new sources of growth. That's why IDG is finally getting its act together on the Internet.

"They've seen the handwriting on the wall," says one IDG magazine editor. "The massive growth in print has slowed. So where does the growth come from? It better be online."

McGovern, a Capra-esque chairman who visits every one of his 3,000 U.S. employees during the holiday season to personally give them a handwritten greeting card and bonus, owns as much as 75% of IDG. The rest of the company is owned by its employees through an unusual stock ownership plan that invests part of the company's profits each year into an equity pool. Compared to the typical four-year vesting period of an Internet company, IDG's employee ownership plan takes seven years to vest.

IDG is not an IPO virgin. In July of last year, IDG for the first time in its 35-year history spun off IDG Books Worldwide. The offering was successful, but not wildly so. Recent moves inside the company suggest that IDG would like to spin off more of its assets, most prominently the online properties, to take advantage of a stock market that has shown demand for Internet-related companies.

"They can get the highest multiples by spinning off the Internet properties," said Ben Holmes, president of

ipoPros.com

. "The cheapest form of capital is to issue equity, and use it to make acquisitions."

"I can go out to South Park, throw a rock and hit an IPO millionaire in the head. It's amazing that we've dragged it out this long," says Mac McCarthy, president of Web Publishing Incorporated.

In addition to raising capital and repositioning IDG for the 21st century, the planned offering is also designed to stem a massive brain drain from the company. Insiders say company executives may be facing an exodus of talent as IDG's competitors lure its employees away with stock options. The recent departure of Bob Carrigan, one of

PC World's

top salesmen who left to become a vice president of streaming media start-up

Spinner.com

, was not taken lightly. What's more, many employees of IDG's online divisions recently threatened to leave if the company didn't get serious about investing more money online and taking the integrated unit public.

"Why are we all going to stay here?," asked McCarthy. "I can go out to South Park, throw a rock and hit an IPO millionaire in the head. It's amazing that we've dragged it out this long."

About the IPO and investment plans, McCarthy added, "It's the only reason I'm here. If this didn't happen, I wouldn't be here, nor would anyone else."

The uber-Web company, according to people working on the venture, will roll up

PC World Online

,

IDG.Net

, e-tailing site

WebShopper

, the

IDG Games Network

, the online units of its print publications and all of the online magazines of

Web Publishing

, including

SunWorld

and

JavaWorld

. Company executives, including IDG president and CEO Kelly Conlin, have been stumping for the project internally from late last year into early this year. But it wasn't until March, when IDG's vice president of technology and Ethernet inventor Bob Metcalfe delivered a big presentation to IDG's board, that the project was greenlighted.

The as-yet-unnamed unit, blandly codenamed "NewCo," would have combined revenue of around $26 million. Company executives are feverishly hammering out the details of the business unit. IDG has yet to select an underwriter, but people familiar with the situation say IDG execs have talked to

Goldman Sachs

and have held exploratory meetings with

Morgan Stanley Dean Witter

. Goldman and Morgan took IDG Books public last year.

In anticipation of the final plan, some business unit leaders are already buying new machinery and looking for new space to expand into. When the business plan is complete, the goal is to file an S-1 before the end of July, and go public in the fourth quarter of this year. That's a best-case scenario; some employees say it may take longer to file the offering with the

Securities and Exchange Commission

.

Challenges Abound

Stitching together a whole unit out of many disparate parts presents a huge challenge for IDG, which has distinguished itself by adopting a decentralized operational structure. Each IDG business operates as an autonomous unit with little day-to-day influence from the higher-ups. But the NewCo is forcing executives to make a painful transition from an "every man for himself" philosophy to a more "we can get all get along" school of thought.

"This is not a company that's good at integrating business units," said one employee, who requested anonymity. "

ComputerWorld

and

InfoWorld

hate one another. How do you convince them to share content?"

Another big stumbling block is the brand issue. In the past, IDG took pride in being anonymous, but now the company must create a more powerful and clear face to present to the public. IDG.Net is being considered as the new name for the enterprise, but it's far from clear whether it will carry the day.

The ascendance of the NewCo is a huge victory for IDG president and CEO Conlin, who has been the chief Internet evangelist within IDG. Part of IDG's so-called "Irish Mafia," Conlin had been battling for control of IDG with Jim Casella, IDG's tough-guy chief operating officer and director who recently left the company. Some IDG insiders say Casella was forced out, while others say he left in disgust over IDG's half-hearted attempt to acquire CMP.