Clarity Partners LP said Thursday, May 31, it is leading an investor group that has agreed to buy upscale magazine publisher Modern Luxury Media LLC in a deal sources said is valued at $250 million. Shamrock Capital Advisors, the media-focused private equity firm founded by Roy E. Disney, will sell Clarity its majority stake in the publisher, a statement from the buyer said.

Lehman Brothers Inc.'s PE arm is a co-investor in the acquisition. Clarity, a Beverly Hills, Calif., buyout shop, will hold a controlling stake, and Lehman will have a minority. A significant stake will be retained, officials said, by Michael Kong, Modern Luxury's founder and CEO; his brother Stephen, the company's managing director of national sales; and other company managers.

Credit Suisse Group and NewStar Financial Inc. are providing debt financing.

Burbank, Calif.-based Shamrock is estimated to have made 5 times its initial investment, sources said.

Modern Luxury publishes 25 titles targeting high-income readers in 12 markets, including Chicago, Dallas, Houston, Los Angeles, New York and San Francisco. The publications focus on fashion, dining, culture, home design, travel and society events with a local flavor.

The magazines include Angeleno, CS (formerly Chicago Social), Atlantan, Front Desk Chicago, Front Desk Los Angeles and Riviera. The company, which employs 245 people, plans to launch a Miami publication in the fall. Management and staff are staying, said CEO Kong. The Modern Luxury sale is expected to close in the next few weeks.

Modern Luxury reaches more than 3.5 million readers per month nationally. Many are very well off. Its readers in Los Angeles, for example, have a median household income of $305,000, the company said.

"Modern Luxury is the only magazine publisher in America that can reach affluent readers with a luxury, localized magazine at the same time that it offers advertisers complete national coverage of every major market in the country," said Josh Gutfreund, a Clarity general partner.

The publisher and Shamrock tapped Louis Samson and Andrew Moore of CIBC World Markets for advice. Seth Weinberg of Mayer, Brown, Rowe & Maw LLP was counsel to Modern. Ray LaSoya, Paul Bernstein and Jason Reese of Hughes Hubbard & Reed LLP advised Shamrock. Clarity used no outside financial adviser. Robert Haymer, Robert Blashek, Tom Baxter, Sean Monroe, Amy Siegel, Gabe Brakin and Elna Santos of O'Melveny & Myers LLP provided legal guidance. Calls to Clarity for comment were not immediately returned.

Michael Kong founded Modern Luxury in 1993. In November 2004, Shamrock acquired a 60% stake in it in a deal valued at $50 million. Management, including the Kong brothers, retained 40% in the transaction. That stake will fall with the sale to Clarity, Kong said.

Modern Luxury's auction began in February with about 30 bidders. Only PE firms were left standing. Modern Luxury's $250 million price tag caused some heads to shake. "There is great growth in the business, but you are going on a lot of faith to pay that price," one banker said.

Strong growth drove the company's high valuation. Last year, its revenues increased by more than 80% while magazines in general were increasing by 3.5% a year, Kong said. Much of the growth, he said, is due to the "fragmented" city regional magazine business. Advertisers typically have to analyze individual markets and then cut deals with different publishers, he said. In contrast, Modern Luxury offers a network of city magazines.

"If you are Cartier, you can buy our network and get 13 markets. We truly operate as a group," said Kong, who estimated the company has grown in the last three years by an average internal rate of return of 91%. "We are really the only regional publisher that focuses on the luxury end of market," he added.

In 2004, Modern Luxury operated in three markets and had $18 million in revenue. The company is approaching $70 million in revenue, said Stephen Royer, a Shamrock managing director.

"It's not every day that you exceed expectations by a great amount, and we did that with this company," Royer said.