Newspaper values have shifted

Dec 2, 2014

By Randy Cope
Cribb, Greene & Associates

Values for newspaper have shifted to where they are often strictly tied to a multiple of the EBITDA (earnings before interest, taxes, depreciation, and amortization) of the business. That has not always been the case.

There was a time when the buyer pool was so strong that buyers were willing to pay on a multiple of revenue if EBITDA was low (or negative). The thought was that they could buy the publication, make a few changes, and they would be in great shape within a year or two.

Now, however, buyers are being much more disciplined, paying only on what the publication is currently doing in terms of EBITDA. It is for this reason that it is important to get things in order before taking your publication to market. 

One of the biggest areas that we see issues with right now is labor cost. In some cases, revenue has dropped dramatically during the last few years, and no adjustments have been made. This may have increased labor cost from around 40 percent to 50 percent of revenues to 60 percent, and even to 70 percent.

Getting labor back to a more normal range can have a big impact on the value of a publication. For instance, a publication that does $5 million in revenue but has 60 percent labor is likely only doing 5 percent profit. At today’s multiple that amounts to a value of around $1 million. 

By getting labor cost back down to the industry standard of no more than 40 percent, the paper could easily be doing 20 percent in EBITDA. That would put the value of the business in the $4 million range, a $3 million positive swing.

Certainly making labor cuts is never a fun process, but it is important to realize that not only is it impacting the value of the business, buy not making such changes is likely putting the publication at risk. A newspaper that is not profitable won’t be around long.

It is also important to realize that you can have a profitable, high-quality product. Some of the best publications we see, in terms of quality content and reproduction, are publications that are also profitable. 

In basketball, you can only have five players, so the quality of the team is dependent on finding the best player for each position. Likewise, after you’ve determined how many positions a publication can justify, you have to work to find the best person for each position. For each position you either have someone who is a perfect fit, someone who is not a perfect fit but has potential, or you don’t have anyone who will fit and you will need to recruit the right person for the position. It is the same for your newspaper—the right team is essential.

Whether you are going to sell your publication soon or just want to improve the health and profitability of the publication for the future, make sure you are making the needed adjustments to keep your publication in top shape. © Randy Cope 2014

Randy Cope is a director with Cribb, Greene, & Associates. Besides helping buyers and sellers through a sale process, he also focuses on helping companies improve operations and strategic planning. He can be reached at rcope@cribb.com.