Conversation with Lee Dirks
A Look Back Over 25 Years 4/1/2005
Lee Dirks, founder and chairman of Dirks, Van Essen & Murray, reflects on a quarter century leading the industry's most active M&A firm
Q. What possessed you to establish a firm on April Fool’s Day back in 1980?
A. Financial necessity. I had just left Knight Ridder, where I had served as vice president and general manager of the Detroit Free Press for three years. I had two children in college and one just out, the recession of 1980-81 was starting, interest rates were in the high teens, and at the age of 44 I was “bootstrapping” the business with expensive bank loans.
Q. Sounds grim.
A. It was, but I knew a lot of newspaper publishers around the country from my seven years as the nation’s first newspaper-stock analyst. Plus, the two most active newspaper brokers were clearly winding down.
Q. Tell us about your first assignment.
A. Fortunately, I got a call the very first day from Edward Bennett Williams, the prominent Washington, DC, attorney. He had gotten my name from Ben Bradlee, a mutual friend who was the executive editor of the Washington Post.
Ed wanted to engage me to appraise the value of the Denver Post, which a client of his was interested in trying to acquire. So I spent the next two months preparing a long report on “the voice of the Rocky Mountain Empire.”
Q. What became of those efforts?
A. Our client made a very respectable offer -- less than 10% below my valuation -- but the owners considered it shockingly low. Six months later, after approaching other potential buyers, they sold the Post to Times Mirror for an amount that present-valued out within one or two percent of my original valuation.
Q. You must have done some promotion in those early days.
A. The usual, of course. I’ve been in newspapers throughout my career, so I believe in the power of advertising. Right from the start we carried ads in the trade press emphasizing my 10 years on the news side, first as a reporter with the Boston Globe and then as a reporter and editor with Dow Jones throughout the 1960s. In addition, I sent personalized letters to key executives of all newspaper groups and to the publishers of most of the independently owned dailies.
Q. Any response?
A. The most memorable was a letter from the crusty publisher of the Manchester (NH) Union-Leader, William Loeb, who essentially said, “You can’t fool me -- that’s a form letter. Don’t waste your time.” Four years later his estate hired me to value the Union-Leader in a dispute with the IRS, and I must say, I think even Mr. Loeb would have been pleased with the outcome.
By the way, one of the warmest responses I received to that first “pitch letter” came from a gentleman I had never met, John Troutt of Jonesboro, AR. He said he appreciated my letter, but he and his family enjoyed what they were doing and were determined to be the last remaining independently owned daily newspaper in the United States. I wrote back, “More power to you; we believe in independent ownership; if we can do anything – appraisals, assistance in buying out minority shareholders, anything, give us a call.” Twenty years later John called me up and said the time had come to consider selling. By then I was beginning to cut back on my direct involvement in deal-making, but I’m proud to say that the very last deal that I led from start to finish was the sale of the Jonesboro Sun.
Q. How has the newspaper M&A market changed over the past quarter-century?
A. In the 1980s, at least 85% of all daily- newspaper transactions involved the sale of independent, family-owned papers. During the past decade or so, 85% or more of the transactions have involved the sale of newspapers by groups to other groups. Incidentally, while we continue to represent a lot of independents in selling -- the Durham (NC) Herald-Sun being the most recent example -- our business has mirrored this shift. Over time we’ve represented 10 of the 12 largest newspaper groups in selling one or more of their newspapers.
Q. What’s the most humorous thing you’ve seen in 25 years of deal-making?
A. We were arranging visits to a very attractive newspaper and its market -- a market (how can I say this delicately?) not noted for its high literacy rate. One evening one of the owners and his wife hosted a delicious dinner at their home for the group that was visiting. The next day the host and his wife received a stunning bouquet of flowers, delivered by a local florist. The card read: “Thanks so much for your hostility.”
Q. You must have shared quite a laugh with the “offending” group.
A. The hosts wouldn’t let me tell the good folks who sent the flowers. They were afraid the visitors would conclude nobody could read in their home town!
Q. What was your most poignant moment?
A. We represented a family that was badly divided, with two of the siblings so estranged that they hadn’t spoken for several years, even though both had very responsible positions at the newspaper. At the closing, one of the brothers leaned over to me and suggested I skip the celebratory luncheon and join him and his wife for lunch at their local club. I was torn, because I had represented his mother and his siblings as well, but he was the person who had initially engaged us to sell his minority interest and the one with whom I had worked most closely on the deal, so I accepted his invitation. As we were waiting for his wife to join us, he said ruefully, “That’s the last time our nuclear family will ever be together.” Sadly, I believe he was right.
Q. Surely you’ve had your frustrations…
A. Surprisingly few. My major regret, I suppose, is that while we’ve handled deals ranging from just $1 million or so to nearly $3 billion (co-brokering the largest Thomson sale with a Wall Street firm), we have done relatively few of the newspaper industry’s very largest transactions.
Q. Why is that, do you suppose?
A. First, many of the larger companies are publicly owned, and they have necessarily developed a strong investment-banking relationship with the Wall Street firm that took them public, to which they feel obligated. Second, for some people there is a prestige factor in dealing with a large, widely known firm.
Q. But Dirks, Van Essen & Murray in recent years has been involved in over half of all daily-newspaper transactions, more than all other firms combined.
A. Right. We concentrate only on newspapers, and three of our four dealmakers have each spent over 10 years drawing paychecks as reporters, editors, and/or business-side executives for daily-newspaper companies. Besides, acquisition-minded companies frequently tell us they would much rather be dealing with folks like us who know what they’re looking for and who speak their language.
But sometimes people simply want the prestige of being represented by a huge firm that their friends will recognize. For example, we were invited to compete against two large Wall Street firms to represent a large group in selling. As we were making our presentation, I happened to mention Warren Buffett, who had used our research and spoken with me several times when he was exploring his acquisitions of large minority positions in Washington Post Co. and Affiliated Publications, which owned the Boston Globe. “You know Warren Buffett?” the controlling shareholder said, incredulously. These were the only words she spoke in the entire hour. We were told afterward that we had finished a very close second. Unfortunately, second doesn’t count.
Q. What was your most rewarding moment?
A. No question -- the time I reported on the successful sale of three South Carolina dailies to the board of their owners, the Raleigh (NC) News & Observer.
Frank Daniels, their president, had engaged me a couple of years earlier to assist them in considering a possible sale of the South Carolina papers, and after a very thorough appraisal of the newspapers and their markets, we had concluded that they should command $74,108,000.
Of course it’s ludicrous to be so precise; we’re pleased if we’re within 5% or even 10% of the number the newspapers actually bring. But we had overlaid our best instincts and our experience with some formulas, and that was the number we had come up with.
When the newspapers went on the market, various “experts” in the columns of the Wall Street Journal placed the value at $40-45 million or thereabouts, but we made it clear to all 14 companies that visited the papers and to the 5 parties that actually bid that we were convinced the successful bid would exceed $72 million.
The winning bid came in at $74,100,000. In other words, we had been off by less than one-tenth of 1%. When I reported this to the News & Observer board a couple of weeks later, I turned to Frank and said, “Sorry, Frank, I just couldn’t get the last $8,000.” In his North Carolina drawl Frank replied, “That’s all right, Lee, we’ll just take it out of your fee.”
Incidentally, the lowest bidder in that transaction -- at $50 million -- was Roy Park, who was well known for paying very strong prices at the time. I’m sure he wouldn’t have minded my sharing that he later told me, “Lee, I’ll never not believe you again.”
Q. From a broader perspective, Lee, what are you most proud of after a quarter-century in the newspaper merger-and-acquisition business?
A. I like to think we’ve helped hundreds of newspaper families and numerous newspaper groups sell important assets that they have built up for decades, sometimes generations, to responsible successor owners for a full but fair price. At last count, these newspapers have been located in at least 35, and probably 40 to 45, of the 50 states.
We’ve also been “present at the creation,” so to speak, of at least eight new newspaper ownerships, either by selling them their first newspaper or by representing them in buying their first daily.
I’m equally proud of the superb staff we’ve assembled over the years. Owen Van Essen, our president, joined us nearly 20 years ago and is, I’m confident, as knowledgeable and skillful a dealmaker as anyone covering any industry.
Phil Murray came aboard nearly 10 years ago after more than a decade as a newsman and after completing an M.B.A with distinction, and I wish I had the writing and analytical skills that Phil has.
Jamie Oldershaw is a brilliant young M.B.A. who has learned a stunning amount about the newspaper business in his three years with us and who exudes both enthusiasm and empathy, important traits in this wonderful business we’re in. And of course Victoria Edwards, who manages our office, and Jane Barry, who performs important research functions, are consummate professionals who have been with us for nearly a decade.
Q. Any final comments?
A. Just “Thanks so much for your hostility.”
Q. That’s “h-o-s-p-i-t-a-l-i-t-y.”