Decade in Review: New highs and new lows
It all started with Y2K. Remember that? If that were all we had to worry about today. Whatever you call this decade, it was certainly one to remember: two record-setting years, huge leveraged transactions and two recessions, the latest of which has toppled several debt-burdened companies into Chapter 11. It’s hard to believe that just two years ago the industry shattered records for deal volume. Here is the decade that was.
The decade started fast, to say the least. The three largest deals in the history of the newspaper industry – at that time – occurred in 2000: Tribune Co. acquired Times Mirror, Thomson Corp. divested all of its U.S. newspapers in a series of transactions and Gannett swallowed Central Newspapers.
The value of daily newspaper transactions set a record at $14.25 billion, a mark that would stand for just seven years. Gannett alone acquired 26 dailies, and Community Newspaper Holdings Inc. (CNHI) was not far behind at 22. Gannett also spent $700 million to buy four dailies and 95 non-dailies in Great Britain. Among other notable U.S. transactions, Dean Singleton’s MediaNews Group acquired the Salt Lake City (UT) Tribune, and local businesswoman Wendy McCaw bought the Santa Barbara (CA) News-Press.
Some 13 newspaper companies spent at least $100 million on acquisitions in 2000. In Arizona, approximately 75% of the state’s total daily circulation changed hands during the year.
Recession caught up with the newspaper industry, driving deal volume down to just over $200 million. Sellers stayed on the sidelines, as advertising revenue declined by 9%. While this seems pretty tame by today’s standards, it was dramatic at the time and enough to put a damper on the market.
CNHI began a strategic initiative to focus on daily newspapers with at least 20,000 circulation. The company divested eight small dailies, principally in Texas and Oklahoma, and acquired the Ottumwa (IA) Courier from Liberty Group Publishing. Darrell Sumner bought three of the CNHI dailies, establishing himself as the year’s top acquirer.
Even as the recession lingered, the appetite for buying newspapers came back. Lee Enterprises and CEO Mary Junck led the way with the acquisition of privately held Howard Publications, which included 16 daily newspapers. True to its new strategic focus, CNHI picked up four dailies from Dow Jones’ Ottaway unit.
Families got in on the act as well. Chip Rogers’ Lawrence (MA) Eagle-Tribune bought three dailies from Ottaway in northeast Massachusetts to complement the flagship. This one will come around again pretty soon. Keep reading. The Rau family’s Sandusky Newspapers added a group in Tennessee. Although much improved from 2001, the U.S. dinner plate wasn’t enough to satisfy all appetites. Gannett plunked down $346 million for a newspaper group in Scotland.
Deal volume continued to build as newspapers began to see a recovery from the stubborn recession. In one of the year’s largest deals, Ottaway bought the Stockton (CA) Record to capitalize on the market’s tremendous growth potential. McClatchy, meanwhile, added the Merced (CA) Sun-Star to its lineup in the Central Valley.
This was the year when lending began to loosen considerably. In an interview with Dirks, Van Essen & Murray, one lender said, “I think it’s safe to say that the industry’s extremely low historical default rates and generally stable cash flows have made newspaper publishing the strongest performer of most banks’ media loan portfolios.”
Private equity firms took note. MCG Capital Corp. and American Securities Capital Partners each made newspaper acquisitions. More significantly, however, Freedom Communications brought in private equity dollars and debt to buy out dissident members of the owning Hoiles family. This is another foreshadowing, in case you haven’t noticed the trend yet.
The surge in available credit and heightened interest from private equity drove deal activity to its highest levels since 2000. In the year’s largest transaction, Journal Register Company acquired Michigan-based 21st Century Newspapers for $415 million, financed with new debt. Other significant deals included Paxton Media Group’s purchase of the 50,000-circulation Durham (NC) Herald-Sun.
Meanwhile, private equity firms rushed to make “platform” acquisitions in the newspaper industry. More new companies were formed in 2004 than in any year since the mid-1990s. Two private equity firms teamed to buy 10 dailies and 12 non-dailies from CNHI, principally in the Southeast and Midwest. The new company, Heartland Publications, would stay active for several more years.
Sandler Capital created HarborPoint Media with daily newspapers in Florida and Arkansas. Famed investor Philip Anschutz got into the act by buying free-distribution operations serving suburban areas of San Francisco and Washington, D.C. Finally, American Community Newspapers, which owned suburban publishing operations, was recapitalized by two private equity firms. Stay tuned on this one.
The headline in our newsletter said it all: “Feels Like Old Times.” The era of the big dollar deal returned as 111 daily newspapers changed hands in 23 transactions worth more than $3 billion. Lee Enterprises set the pace early with its $1.46 billion acquisition of Pulitzer, Inc. Continuing its buildup in larger markets, CNHI bought Eagle-Tribune Publishing, the family-owned operation in Massachusetts that had made a big bet on the Ottaway newspapers just three years earlier.
In a trend-setting deal, private equity firm Fortress Investment Group bought Liberty Group Publishing, a collection of 66 small market dailies and related publications, and promptly got to work buying more newspapers before the year was out. This company later went public as GateHouse Media, offering investors a high dividend while growing the cash flow through leveraged transactions.
Despite a relatively soft advertising environment, values remained very strong. Strategic acquirers were able to take out significant costs, and high lending ratios/low interest rates allowed private equity firms to pay market prices and still achieve returns. There were a few storm clouds, however. Investors battered the public newspaper stocks as concerns mounted about the advertising world being roiled by the likes of upstarts Google, Yahoo! and Craigslist. But get ready, because the fun was just beginning.
This was the year of McClatchy. In a year when nearly $10 billion worth of newspapers were sold, McClatchy accounted for an astonishing 91% of the activity. Early in 2006, CEO Gary Pruitt led McClatchy’s acquisition of Knight Ridder, the industry’s largest to date in terms of total circulation. McClatchy then spun off a dozen Knight Ridder papers, including the San Jose (CA) Mercury News to Dean Singleton, the Akron (OH) Beacon Journal to Canadian David Black and several newspapers in the upper Midwest to the Marcil family’s Forum Communications.
But the deal market remained active otherwise. GateHouse Media, led by new CEO Mike Reed, made two large acquisitions of daily and weekly newspapers around Boston. And Donna Barrett, taking over for Reed at CNHI, bought a group of seven mid-sized dailies from Ottaway. With the deal, CNHI passed Gannett as the nation’s leading owner of daily newspapers.
Hidden in this flurry of deal-making, however, was a hint of things to come. McClatchy shed the Philadelphia Inquirer/Daily News and the Minneapolis Star Tribune in separate transactions to private equity interests. It would have been unthinkable even a year earlier that no major newspaper company would step up to buy some of the nation’s biggest titles. But as Wall Street continued to sour on newspapers, and online competition crept increasingly into the larger markets, the metro newspaper fell from grace in 2006.
The party continued as sales of daily newspapers topped $20 billion, surging past the old mark set in 2000. The big dollar deals were News Corp.’s acquisition of Dow Jones and real estate mogul Sam Zell taking Tribune Co. private in a highly leveraged transaction.
But the year’s most active acquirers had their sights set on smaller markets. Newly public GateHouse Media, with its mantra “hyperlocal” media, continued its shopping spree. The company bought Midwest dailies from Copley Press, four dailies from Gannett and finished the year with a deal to buy 14 dailies from Morris Communications.
Seeing GateHouse’s success with its high-dividend strategy, publicly traded Australian firm Macquarie Media Group entered the U.S. newspaper market with a similar approach. The blokes from Down Under bought Jeremy Halbreich’s Texas-based newspaper company and made him president of the new venture. By year-end, they also had added a group in the upper Midwest and another on the eastern shore of Maryland. Meanwhile, private equity-backed Heartland Publications expanded considerably, adding the Babb family’s newspapers in the Southeast; and Courtside Acquisition bought suburban publisher American Community Newspapers and turned it into a small public company with a pile of debt. Cue the foreboding music.
The year opened with more whacks of what would later be dubbed “The Great Recession” continuing to lash the newspaper industry. Even so, a few newspaper deals were getting done. Walter Hussman’s WEHCO Media bought the Jefferson City (MO) News Tribune; the New York Times Co. added a Florida daily; the Omaha World-Herald Co. acquired two Nebraska dailies; and GateHouse made a couple of final deals. Cablevision’s $650 million acquisition of Newsday from Tribune, however, accounted for about three-fourths of the year’s transaction value.
Falling advertising revenue and the national meltdown of the credit markets conspired to limit the number of deals getting done. Some high-profile transactions were pulled from the market due to the inability to get the deals financed. It was eerily similar to 2001, when recession put a crimp in newspaper M&A activity following a record year. However, this time it wasn’t the case that sellers stayed on the sidelines. After several years of easy credit, the money simply wasn’t there to consummate transactions. In December, Sam Zell’s Tribune filed for Chapter 11 bankruptcy protection, citing lower profits and a crushing debt burden. More would soon follow.
After two years of declining ad revenue, it suddenly got much worse in the first quarter of the year. Newspaper publishers struggled with year-over-year ad losses of 20% to 40%. Bankruptcy filings came from Journal Register, the private equity owners in Philadelphia and Minneapolis, American Community Newspapers and Freedom Communications later in the year. All of these were due to debt taken on for deals earlier in the decade.
Even so, family owners began to tiptoe back into the market. Clint Shelton’s Decatur, Alabama-based publishing company bought the neighboring daily in Florence from the New York Times Co. Cox Enterprises sold several mid-sized dailies, many of them to family newspaper owners Lissa Walls Vahldiek, John Kent Cooke and Edward Seaton. Despite problems with earlier newspaper investments, private equity stayed active. Longtime newspaper executive Rich Connor, backed by HM Capital, bought the Portland (ME) Press Herald and two other Maine dailies. A private equity-backed newspaper company also acquired two dailies from Cox.
Waco businessman Clifton Robinson bought the Waco (TX) Tribune-Herald in what may presage a trend toward more local ownership. Similarly, Chicago businessman James Tyree bought the Chicago Sun-Times and its suburban group during the Sun-Times’ bankruptcy proceedings. The deal was valued at $25 million.