In the past two years, there has been a significant increase in the number of newspaper transactions. This is primarily due to an improved economy, many family-owned businesses looking to exit the industry, and a belief among investors that the industry is favorably priced and offers value for owning a community newspaper.
Newspaper companies have worked hard since the beginning of the recession to improve their operations, bolster their balance sheets by saving cash and reducing debt, and right-size their business in line with their revenue streams.
Prior to the recession, newspapers were very attractive investments and typically commanded premium EBITDA multiples which could range from 8x to 12x depending on geographic location, operations, and other factors. In some instances, multiples were even higher if the acquisition was strategic in nature.
However, the recession brought dramatic change. Multiples are now more in line with what you would expect for other traditional industries. According to Cribb Greene, a leading publishing company brokerage firm, EBITDA multiples for newspapers currently range from 3x to 6x.
Small and mid-sized newspaper transactions are seeing higher multiples than larger company transactions. There are fewer buyers in the market for large newspapers, so there is less competition to drive up prices. Additionally, many transactions consist of financing from traditional sources such as banks. However, they usually require the buyer to put in cash or the seller must take back a note to finance the deal. Since many large newspapers such as the Washington Post or the Boston Globe have higher overall costs or are in poor financial condition, there are very few such deals.
A transaction’s price can also be influenced by whether the transaction is a strategic purchase. Strategic acquisitions are often pursued based on geographic location, which can benefit the purchaser by gaining increased operating efficiencies and eliminating certain operating costs.
EBITDA is another factor in transaction multiples. Companies that currently have a high EBITDA or have significant declining revenue trends tend to fetch lower EBITDA multiples since the seller may see diminished upside to improving EBITDA or the business operating trends do not warrant a higher multiple.
Today’s newspaper buyers are looking for strong companies in economically healthy communities. They need to be a strategic fit with their current businesses at multiples that makes sense for today’s industry business models. Since small and mid-sized community newspapers continue to provide value to their local communities as gatherers and reporters of information, they can be particularly attractive targets.
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