Six-year-old digital business news site Quartz, with only spotty profits and annual revenue of roughly $30 million, sold just over a week ago for $75 to $110 million. The payout depends on how well it does meeting growth goals.
Which suggests a comparison: How much would a newspaper with $30 million in revenues fetch in today's market? Assuming that it makes 10 percent profit on an operating basis (probably typical), maybe $11 to $13 million.
I bounced the question off two leading U.S. newspaper brokers and Mike Reed, CEO of New Media Investment, the parent of the GateHouse Media chain, which has laid out roughly $1 billion for acquisitions over the last five years. All three said that the going rate is a 3.5 to 5 times multiple of the operating profit.
But what if the paper in question instead has operated at a slight loss for a year or two?
"It might not be worth anything," Larry Grimes, recently retired CEO of Grimes, McGovern and Associates, told me. "We don't have a group of buyers for that kind of situation — there is no way to monetize it."
It might be a little different if the revenues were $100 million, Grimes said, but such a paper would be a big fixer-upper project for a buyer.
Reed had a different response, but only slightly.
"We don't value properties on a multiple of revenue," he said. "However (for an unprofitable paper), we might look at how much we could earn after we work our magic and then pay one or two times (the projected operating profit). But that can be a riskier proposition."
While this seems to be a time of great churn and volatility in newspaper ownership, appearances may be deceiving.
"Newspapers have been trading in a tight range of 4 to 5 times EBITDA [see note below] since 2012," Owen Van Essen, president of Dirks, Van Essen, Murray and April, told me. Yes, prices have been going down but that is because revenues and profits are falling not because the valuation multiple has declined.
Van Essen expects the valuation formula to stay about the same over the next several years.
Franchise or brand value do not seem to enter into the calculation, at least not directly. Likewise assessing editorial quality is not a factor, though superior journalism could help a paper and its website build and retain paid circulation.
I have sometimes tried to analyze deals by looking at whether valuable real estate comes along with a paper and its digital sites battling to stay profitable. When John Henry bought the Boston Globe for $70 million five years ago he got the aging Morrissey Boulevard headquarters and a big chunk of adjoining land in a developing neighborhood. It sold for $81 million last December.
When an investment fund, Revolution Capital Group, bought the Tampa Tribune for $9.5 million in 2012, the deal included the company's headquarters. Revolution ended up selling the building and land near downtown for $17.5 million in 2015 (and later sold the paper itself to the Tampa Bay Times, which Poynter owns, for an unspecified amount).
So sometimes land is a significant sweetener, but not always. The real estate may be mortgaged or it may, for various reasons, not be easily sold for reuse as offices or for development.
In the most recent transaction for a mid-sized paper, the sale of The Virginian-Pilot to Tronc on May 29 for $34 million, the deal included the Pilot's longtime downtown Norfolk headquarters, valued at about $8 million for tax purposes and a separate printing plant, valued at $5.7 million. But that does not necessarily mean the operating business was worth only $20 million.
The great majority of the papers Grimes and Van Essen handle are small and often family owned, as were many of the titles in the Morris, Halifax and Stephens chains GateHouse has acquired. The dynamics change some as the papers get bigger, Reed said.
In recent months, GateHouse bought the Austin American-Statesman and The Palm Beach Post, both from Cox. Earlier metro purchases included the Columbus Dispatch and Providence Journal. All went for between $45 and $50 million.
That doesn't indicate that he and his financial backers have a $50 million spending limit, Reed said.
"That's just coincidence; they all had about the same EBITDA."
"But no," he continued, "we wouldn't look at the Chicago Tribune" as a potential acquisition.
Other considerations push the price up or down the range, Reed said. A fast-growing market like Austin is a plus; expensive union contracts like those at the Boston Globe a negative
For very large publications other factors enter the equation. A group led by a member of the founding McCormick family, for instance, has been exploring buying a controlling stake in Tronc, possibly partly spurred by restoring family tradition at the Chicago Tribune.
Then there is this year's most spectacular deal, Dr. Patrick Soon-Shiong's acquisition of the Los Angeles Times for $500 million. Soon-Shiong has indicated in interviews that he probably overpaid. But he had ample motivation, wanting both to fund the best possible news organization for his hometown and regain some of the Times' national and international luster.
It might not be unusual for a newspaper with trophy value to sell for as much as eight times EBITDA, Reed said. GateHouse faced that scenario in late 2015 when it sold the Las Vegas Review-Journal, acquired just ten months earlier with other properties, to Sheldon Adelson's family for $140 million.
Adelson was the classic motivated buyer with family, political, civic and business reasons for wanting to own the Review-Journal.
The Virginian-Pilot deal was more typical. On the buyer side, Tronc was a natural partner since the Norfolk-based Pilot can integrate operations with its Daily Press of Newport News becoming dominant in the sprawling Hampton Roads metro.
On the seller side, the Batten family's Landmark Communications decades ago began diversifying its media investments including a wildly lucrative ownership position in The Weather Channel. It had sold the rest of its papers but hung on to its hometown flagship (as the Cox family has with The Atlanta Journal-Constitution).
Finally, though, executives decided it was time to cut loose the Pilot too. CEO Frank Batten, who visited the press room as a child with his father, said that, except for the large national titles, independent newspapers have not been able yet to negotiate a transition to a digital business model. Had the Pilot been sold two decades ago, he added, it would probably have gone for 10 to 15 times as much.
It is hard to make a case that prices for newspapers and their digital operations will bounce back. Van Essen said that overall revenues continue to drop on average at a low single-digit rate year after year.
"Some see a time when (the industry) will be revenue neutral," he said, noting that there does not seem a scenario for revenues and profits to turn back up.
Grimes said that he knows of one communications firm that may soon join GateHouse and smaller chains like Ogden and Adams as buyers. And given his view that some papers are one or two more bad years away from losing all their sale value, Grimes added, "a high percentage (of those owners) are thinking of exit strategies."
Note: EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. For sales, EBITDA is considered the best measure of profitability on an operating basis (since a buyer may have different financing and different tax considerations). To use a household budget analogy, you would say your earnings are what you are paid before considering taxes, interest on a mortgage and other loans or the depreciating value of assets like your car.
