Deal market strong despite industry headwinds

Feb 12, 2018

By Owen Van Essen
Dirks, Van Essen & Murray
In 2017, the newspaper industry saw its busiest transaction year in nearly two decades with 31 separate deals involving daily newspapers. These transactions were not dominated by any one or two acquirers—21 separate buyers purchased daily newspapers last year. In total, 80 dailies changed hands in transactions worth $347.97 million.
By comparison, the peak of newspaper merger and acquisition activity occurred in 2007, when a record-setting $20 billion in transaction value was generated by 30 deals. That year also marked a peak in total newspaper advertising spending, which the News Media Alliance reported to be $45.4 billion. Dirks, Van Essen & Murray estimates total annual newspaper advertising spending to be approximately $16.3 billion today.
In 2007, the year the Great Recession took hold, daily newspapers were selling for more than 10 times adjusted EBITDA (earnings before interest, tax, depreciation and amortization). By 2009, the multiple had fallen by more than half. That drop was precipitous, but multiples have remained steady in the years since, helping to fuel newspaper merger and acquisition activity. Of the 91 dailies that changed hands in 2007, 48 have changed hands again in the years since, including eight in 2017.
The activity in 2017 was defined in large part by a theme that continued from 2016—the sale of independently owned properties and small family owned groups that are finding it increasingly difficult to operate effectively in today’s advertising environment. These owners lack the scale of larger group owners who bring efficiencies on both the revenue and expense side.
In addition, the industry’s focus on building regional publishing clusters means that more deals often are required when group owners decide to sell. In 2017, the sale of Civitas Media’s newspapers, which were scattered across several states, required nine separate transactions involving nine different buyers. Eight of these buyers were adding to adjacent operations.
The number of active daily newspaper buyers in 2017—21—is notable as it speaks to the strength of the marketplace. In the past five years, 73 separate entities or individuals have purchased dailies, and numerous others have acquired non-daily titles and groups.
The 2017 buyers included a mix of individuals, public companies, and large and small groups. Transactions included public company Lee Enterprises’ acquisition of the Moline (IL) Dispatch-Argus across the river from its Iowa newspapers to consolidate the Quad Cities. In a similar move, Hearst Newspapers acquired dailies in Alton and Jacksonville, IL, that are adjacent to their newspaper operation in Edwardsville.
Individuals to make purchases included longtime newspaper operator Larry Miller, who purchased dailies in Durant and Altus, OK. The Reynolds family in Huntington, WV, also expanded this year, as did Mike Schroeder’s Central Connecticut Communications.
We expect the deal flow to continue at a similar pace, at least through the first half of 2018. The number of dailies sold is likely to be in line with recent years—within a range of 50 to 80 per year—and valuations should remain steady and consistent with those over the past 12 months.