Moderate to good market activity for mid- and small-market buys
August 8, 2014
Newspaper market overview
By Gary Greene
Cribb, Greene & Associates
Newspaper merger and acquisition activity was steady in 2013, and this trend has continued through the second quarter of 2014, with newspapers coming into the market finding buyers.
Private buyers are continuing to impact mid- and small-market acquisitions of individual properties, while the financial buyers generally are seeking larger acquisitions in the 3-4x trailing EBITDA range.
Leading this growing buyer pool has been privately owned companies that are making strategic acquisitions. Prices paid from this private buyer pool in general are well in excess of the 3-4x buying discipline of the financially backed investors. Some of these transactions include seller-financing, which tends to drive selling prices up. The exception to the higher valuations is when properties are performing in the 25 percent and over EBITDA to revenue range (buyers don’t feel they will improve profits), or if they are located in less desirable markets.
Mid-size and small-market newspapers companies are forecasting that revenue losses experienced since 2007 will level in 2014. Likewise, these companies are seeing that the percentage of their paid circulation revenue is growing. They are also beginning to experiment with a variety of new revenue streams and major organizational changes. This has led to signs of stabilizing revenue, along with opportunities to provide digital and social media marketing services to local and regional businesses. This new revenue stream is being actively pursued by a number of companies that are investing heavily in developing this service for local businesses.
Although there are a number of positive characteristics in mid-size and small-market newspaper companies, publishers are keenly aware of the immediate challenges. Most are managing their businesses closely, i.e., abandoning large buildings in favor of smaller office spaces, and are likewise working to reduce debt and improve their balance sheets.
The increasing number of financial and individual buyers over the past year, with interest specifically in newspaper companies located in middle-sized and small markets, is a significant reversal of the most recent several years. In 2013 and into this year publishers continue to deal with economic challenges, while they are seeing some positive trends. However, economic realities remain a challenge to the industry, requiring that publishers manage efficiently and that they seek new, profitable revenue sources.
Small newspapers bring higher multiples
By John Cribb
Cribb, Greene & Associates
An oddity of the current market for newspaper companies is that larger transactions tend to sell for lower EBITDA multiples. A stand-alone geographic newspaper or cluster with $20 million or less in revenues may bring a full EBITDA multiple or higher than a group with revenues of $30 million to $100 million. In the current market smaller transactions are trading at higher EBITDA multiples, and if a larger group can be sold in pieces it may yield a higher value multiple.
This seems to be due to two factors: The first is that there are few media companies making larger acquisitions currently. This lack of competition in the buyer pool tends to depress values, as there may not be multiple bids to drive values up. Second is that small transactions may not require conventional bank financing, which can still be difficult to obtain. Buyers of the smaller properties may have cash on hand for the purchase, may borrow from regional banks at levels acceptable to their risk tolerance, or may use some seller-financing. Both of these factors—less buyer competition and a greater need for conventional financing—tend to decrease the EBITDA multiples paid in larger transactions.
Where the EBITDA multiple range paid for larger newspaper transactions in the current market is 3.5x to 5x, smaller transactions completed by Cribb, Greene & Associates are tracking at higher multiples. In 2013 through early 2014, CG&A transactions of less than $20 million have averaged an EBITDA multiple of 5.8x (excluding an 18.5x transaction, which was unusually high).