Acquisition Activity Rebounds in 2002
Stage Appears Set for Even Better 2003
Daily newspaper transaction volume rose significantly in 2002 even as the industry struggled through a lingering advertising recession.
With many companies and analysts now forecasting a recovery in advertising revenue in 2003, several positive factors are in place that likely will lead to a continued increase in the pace of acquisition activity.
The most notable factors are quite simple: newspaper values have held up much better than they did during the last recession and buyers have remained active when shown an opportunity.
For the year, 38 daily newspapers changed hands in 16 separate transactions totaling nearly $1.2 billion. In 2001, just 22 daily newspapers were sold with total transactional value of $209 million, representing the lowest dollar volume in more than 25 years.
Also significant was the fact that larger newspapers were sold in 2002 than in the prior year. The average circulation of dailies sold in 2002 was 21,283, compared with 7,680 in 2001.
The largest deals of the year -- Lee Enterprises’ acquisition of Howard Publications and Community Newspaper Holdings’ purchase of four daily newspapers from Ottaway Newspapers -- involved primarily mid-sized daily newspapers.
2002 vs. 1992
Although the industry’s advertising recession has been worse in the current downturn than in the early 1990s, the merger-and-acquisition climate has been much brighter.
One key difference is that buyers largely disappeared in 1991 and 1992, but have remained active through the most recent recession.
Why? With M&A experience in each of the last three recessions, we believe psychological factors played an important role in determining the very different acquisition atmospheres.
In the early 1990s, newspaper executives in many cases were experiencing lower revenue numbers for the first time. This led to a single-minded, inward focus on operations as newspapers struggled to maintain cash flow. (During the recession of the early 1980s, advertising revenue increased substantially in large part due to high inflation. The last meaningful decline in ad revenue occurred in 1960.)
In addition, anxiety about the emergence of electronic information delivery meant that buyers were reluctant to make big bets on newspapers. Consequently, buyers retreated to the sidelines, and values for newspapers fell by 15% to as much as 50%.
This time around, in spite of a more severe advertising recession, the confidence level among newspaper executives is much higher. Newspapers are now in a position to benefit from the Internet, while the specific threats are more clearly in focus. And managers have a stronger belief that the current downturn is temporary.
Other, more tangible factors have helped as well. Interest rates are low, and acquiring companies have strong balance sheets with plenty of capacity for buying newspapers.
Thus, buyers have been ready to step in when properties have come available.
There just hasn’t been enough available in the U.S. With a dearth of opportunities here, Gannett reportedly will spend 215 million pounds (about $350 million) for a newspaper group in Scotland.
Ad Outlook Brightens
As the year ended, newspaper executives were sounding optimistic for the first time in many months.
Many of the public newspaper companies are expecting to see advertising revenue growth in the low- to mid-single digits on a percentage basis, following two years of lower numbers. Moreover, expectations for increases in newsprint prices do not seem as dire as they did a few months ago.
With business improving, companies that have been delaying going to market likely will decide to do so in 2003. Barring any external events that might short-circuit a recovery, we expect to see more transactions this year than in 2002.
Many of the buyers in 2002 were among the most active companies in recent years.
In addition to the Howard acquisition, a $694 million purchase involving 16 daily newspapers, Lee Enterprises added a strategic daily and group of weeklies in southern Wisconsin to bolster its growing cluster around Madison.
CNHI has grown into the largest owner of daily newspapers in the U.S. in just five years. Its strategic focus now is to acquire mid-sized dailies, like the four Ottaway dailies, and divest smaller, non-strategic properties.
Other buyers in 2002 included Dean Singleton’s MediaNews Group, Paxton Media, Ottaway, Rust Communications, and 21st Century Newspapers, all of which have been active over the past several years.