Behind the recent surge in newspaper deals

By the editors of Media Life

This article is part of a Media Life series “Reinventing the American Newspaper.” Click here to read other stories in the series.

Gannett’s recent bid for Tribune Publishing has shone a light on a big trend in newspapers right now: Acquisitions. Last year more newspaper transactions took place than any year since 2007, right before the Great Recession began. This might seem counter-intuitive, considering the struggles of print over the past decade. Who in their right mind would want to buy a newspaper? But the truth is newspapers are priced to sell and many remain profitable, which makes them attractive targets. Sara April, vice president at Dirks, Van Essen & Murray, a newspaper mergers and acquisition firm, talks with Media Life about who’s making the buys, who stands to benefit, and how this might change in coming years.

What’s the profile of the typical paper being sold in the transactions over the past two years? Are these big papers, small, urban, etc?

Recently there have been a large number of small-market transactions and a handful of significant group deals involving dailies of all sizes.

In 2015, nearly half of all dailies sold had circulation of 10,000 or less. These were purchased by community newspaper publishers such as Adams Publishing Group, Boone Newspapers and Sample Media Group, and were also included in larger group purchases made by Gannett and New Media Investment Group.

The re-emergence of public companies on the buy-side has driven the market for large metro papers. Their purchases last year included the 135,000-circ Columbus Ohio Dispatch and the 211,000-circulation San Diego Union Tribune.

What’s sparked the recent rise in sales? Why now, at a time when newspapers’ value, even on the digital side, is facing questions?

Purchase prices are attractive. At today’s prices, even with conservative financial projections, newspaper companies can produce an attractive return on their investment, and the investment carries low risk.

Yes, low risk. There are many buyers of newspapers, as well as other pundits, who believe that much of the risk of the business has been wrung out. It may not be a growth industry like it used to be, but it can still be quite profitable.

In addition, compared to most other industries, the newspaper business today is not a capital-intensive business. With the consolidation of printing, fewer owners have to make capital expenditures on expensive presses. And technology advances have made replacing computer systems and software much less expensive relative to the necessary expenditures in previous generations. The newspaper business today is about people and marketing.

Additionally, while these buyers understand that their investment in newspapers might not be the highest financial-yielding investment they own, many value that local media can have an enormously high-yielding social impact on its community.

What sort of companies are you seeing involved in these transactions — is it mostly other newspaper companies? Or are you seeing outside buyers come in? Why?

In 2015, the public companies dominated the high end of the market.

Gannett and Journal Media Group emerged as new, newspaper-focused public companies in 2015 – Gannett separated from its broadcast and digital properties, and Journal Media Group spun off from the merger of E.W. Scripps and Journal Communications.

Gannett, however, proved to be the aggressor. It acquired full ownership of 11 daily newspapers in Texas, New Mexico and Pennsylvania from its majority partner, Digital First Media.

And early in the fourth quarter, Gannett agreed to buy Journal Media Group, owner of 15 dailies, for $280 million. The announced purchase price is equal to the amount paid by New Media Investment Group for Halifax Media Group at year-end 2014. These represent the two largest transactions by dollar volume since 2008.

New Media, meanwhile, remained busy in 2015 as well, buying or agreeing to buy 11 daily newspapers. Early in the year, it paid $102.5 million for Stephens Media, whose eight daily newspapers included the Las Vegas Review-Journal. At year-end, New Media sold just the Las Vegas daily for $140 million to local interests.

Among other public companies, BH Media Group (a unit of Berkshire Hathaway) acquired two dailies, and Tribune Publishing bought U-T San Diego. There also was a fair amount of activity at the smaller end of the market. Community newspaper buyers included Adams Publishing Group (six dailies), Sample News Group (four dailies) and Boone Newspapers (three dailies).

For nearly all of the deals involving daily newspapers, the buyer was an existing newspaper owner. The biggest exception was Las Vegas, sold to a group led by casino owner Sheldon Adelson. Home News Enterprises was sold to a newly formed company, AIM Media Indiana. However, the head of the new company, Jeremy Halbreich, has a separate newspaper company based in Texas.

There have been some key purchases made by local interests during the past few years, such as John Henry with the Boston Globe acquisition in 2013, and Glen Taylor with his acquisition of the Minneapolis Star-Tribune in 2014. These were examples of wealthy individuals valuing their local daily and seeing business opportunities within.

What’s the case for consolidation in newspapers?  What long-term impact will these sales have on the industry?

Expense-saving synergies. Combining just back office functions – accounting, HR, payroll, etc. – can make a significant impact on the bottom line. If newspapers are adjacent or close to each other, opportunities also exist to consolidate circulation, printing and distribution. A larger footprint also creates more selling opportunities for a single sales staff.

When companies can pool their resources, it may allow them to continue providing quality news coverage where it may not have been economically possible otherwise.

Is there a case against it?

There’s something to be said for a newspaper’s individual identity and how it resonates with readers. Does the front page include strong local content, or is it wire copy or more general state news? When a subscriber calls to put a vacation hold on their paper, who are they calling?

I think it’s a careful balancing act for owners to maintain a right-sized expense structure while preserving the local staffs that connect with readers. With too much consolidation, it’s possible to lose that local flavor.

But also can be done in such a way that it’s seamless to the reader/subscriber.

Do you foresee transactions continuing this year?

Yes. Over the past five years, annual newspaper transaction volume has been in a fairly tight range between $642 million and $826 million. We do not expect any major deviation from that range in 2016.

We expect the flow of newspaper deals, particularly for smaller-market newspapers, to be steady in 2016 and consistent with the past 12 months.

Valuations strengthened in the second half of 2015. Looking forward, we believe those valuations will hold through the year.

Tags: gannett, newspaper acquisitions, newspaper sales, newspapers, reinventing the american newspaper, Tribune Publishing