Advisory Trends: Newspaper Outlook – Achieving Acceptable EBITDA in M&A Deals
December 13, 2022
Jan Davis, Media Content Creator, Interviewed Tim Smith, Senior Associate/Advisor, Grimes, McGovern & Associate
Newspapers operate in a challenging environment, yet many are attractive acquisition candidates. In this interview, Tim Smith, Senior Associate with Grimes, McGovern & Associates, shares his insights about the current state of the newspaper market.
JD: What is the climate for buying and selling a newspaper?
TS: The major newspaper groups are making selective acquisitions to grow their market penetration in regions with existing properties. Additionally, these groups can utilize management synergies with accounting, circulation, and editorial staff.
Unfortunately, there’s a perception that newspapers aren’t profitable, so people value them less than they should. An example that feeds this perception is Cherry Road’s acquisition of four Gannett newspapers. Those papers aren’t bad newspapers; they just don’t fit Gannett’s model. That’s all. But the news reports this as if the company is selling off its newspapers.
Many profitable, independently owned newspapers in the U.S.; many are located between the Mississippi River and the Rockies. Some have been in the same family for 100 to 150 years. Once you dig into the newspapers’ financials, you can see where there’s profit happening or increased profit to be had. If a newspaper group bought these papers, put them under one corporate title, and ran them for their communities, they’d see a return on their money in three years.
JD: What are EBITDA multiples for newspapers like right now?
TS: EBITDA multiples for newspapers are decreasing. Helping a newspaper get a decent EBITDA multiple is difficult today. Many newspaper owners are older and may have yet to keep up with the market trends for the sale of a newspaper. If all the pieces are in place, a high valuation is 3x EBITDA. And if the newspaper is in a hot market, a 3.5x EBITDA is possible.
JD: What makes a newspaper sellable?
TS: Sellable newspapers are profitable and have well-run operations. They also have a positive cash flow, an established brand, a healthy base of advertisers, and in many cases, multiple revenue streams. They’ve successfully created a happy medium between news coverage, advertising, and digital advertising.
The newspaper must have adequate staff when it goes to market. A buyer is going to want to avoid adding staff. For example, if you’re a newspaper owner doing three different jobs, buyers will reduce their offers because they’ll have to add staff to do those jobs. Also, when owner-operators sell their newspapers, they will have to work in the business for an extra two years after the sale to gather the amount of money they think is worth selling the property.
JD: What are some potential obstacles in the deal-making?
TS: Bank financing is challenging. You can get bank financing, but the interest rate is very high. If you are using SBA loans, prepare to have your sale go on for an extra six months to a year because it takes time for them to turn that loan application over.
The current tightening of the financial market is a huge obstacle because it will make it difficult for buyers who don’t have private financing. On the buyer’s side, I suggest they have their financing in place and stick to their budgetary limits.
Another potential obstacle is the possible lack of trust between buyer and seller. There must be an element of trust between all parties to execute the deal. And currently, we’re not in a very trustful environment in the United States, and it bleeds over into all aspects of the business. There is a higher suspicion that everybody is trying to get something over on somebody else. There is a heightened level of skepticism that I don’t know that I’ve seen before.
JD: And the future?
TS: I’m an optimist about newspapers. I love them and think they’ll be around forever in some shape or form. What that looks like in 20 years, we can’t tell. So, there are still growth opportunities.
Tim Smith is a Senior Associate with Grimes, McGovern & Associates. Throughout his career, Tim Smith has advised on several successful acquisitions of regional newspapers. He can be reached at [email protected].
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