It’s A ‘Once In A Generation’ Opportunity To Buy Newspapers That Still Make Money, That Is If You Can Find The Financing

Philip M. Stone June 25, 2009 Follow on Twitter

Small and mid-sized US newspapers are sharing some of the financial problems of their larger Metropolitan counterparts, but according to newspaper brokers if you’re going to buy this is the time to do it.

Larry Grimes, president of W.B. Grimes & Company, tells ftm in an email he thinks it is “extremely short-sighted on the part of many newspaper groups to think they can achieve significant growth in revenues and cash flow simply from within their existing operations, and especially at a time when they have scaled back the news gathering and marketing development at those very papers.

“I’d strongly suggest strategic acquisitions make great sense and especially at a time when buyers can make a move for a fraction of what it would have cost just two years ago. The advertising recession has not made it easy for newspapers to free up cash to do deals; this coupled with most banks reluctance to provide reasonable acquisition financing has certainly put a damper in the buyer’s market,” he said.

So, for those not being strangled by debt payments and for those who can get bank loans, then these small to mid-sized newspapers can make some sense at current prices.

But the banks are being difficult.  A Florida bank manager told ftm, for example, that on Monday and Tuesday regional branch managers attend meetings where senior executives bang the table telling them to go out and bring in loan business, and on Wednesday, Thursday and Friday those same senior executives are turning down the loans! Retail is a dirty word. One retail client wanting an additional $25,000 loan offered the bank’s own $25,000 Certificate of Deposit (CD) as collateral and still got turned down! Makes you wonder how the banks are using all that federal TARP money intended to help business investment.

Collateral is the buzz word now. It used to be banks were willing to value the property, the printing presses and everything else within a newspaper, take a lien out on all of that and not ask for much more if any collateral. Nowadays at some banks the value of the property and everything inside is no longer a basis for doing the deal.

But the good news for buyers is that if the money is available, the prices are really low – around 4-6 times EBIDTA (Earnings Before Interest, Depreciation and Amortization). “Multiples are being driven down by the lack of buyers in the market,” Grimes say. “It’s awfully hard to create an auction situation when there is only one buyer.”

What does worry Grimes even more, though, is that he is noticing a definite morale drop in current owners who really are beginning to believe that all is doom and gloom.  He says they need to take a step back, “taking a hard look at the role their newspaper and web site plays in providing news and information in their marketplace and how those properties are positioned as a primary tool for advertisers. I think they would be pleasantly surprised they remain firmly entrenched as the number one media in their market. That said, many seem to be ready to throw in the towel fearing what really is the unknown.”

One thing that can really move along a sale, apparently, is property. Copley had the San Diego Union Tribune on the market for several months without serious nibbles, but when the deal was finally done it was to a Beverly Hills Fund, Platinum Equity, that was probably more interested in the property involved than it was the newspaper itself.

San Diego real estate brokers estimate the newspaper’s headquarters building is probably worth  around $100 million, yet it was sold by Copley in the deal for $35.5 million. In all, six parcels of land were included and two have already been put up for sale  for some $2.5 million more than Platinum Equity had paid, and the real estate people in the area say the property has not increased in value since the Copley sale. The conclusion therefore is that Copley was so desperate to be rid of the newspaper it greatly discounted the true worth of accompanying property that really was worth something to get the deal done. Something that McClatchy might think about,  for instance, in  Miami and Ft. Worth?

For some time the small and mid size newspapers had seemed immune from the financial catastrophes hitting the metropolitans. But even back then Grimes warned that if gas hit $4 a gallon then all bets were off, and that’s basically what happened and it has been downhill since. Even so, many large newspapers reported their Q1 ad revenue down by close to 30% but the smaller newspapers were hit to a lesser degree, around 10–15%, still a big hit for those on tight budgets.

So, it certainly seems to be a buyer’s market – prices are low and seller morale is even lower. But wouldn’t you know it, just when that once in a generation opportunity comes along the banks aren’t playing ball, even with all that federal financial bailout money. 

Newspapers should help their own cause by crying that out loud in big bold headlines!