Cycles: Ready for a Jump-Start?
The newspaper industry has been in a funk for two years, with soft advertising volume that mirrors the soft national economy. The story has been much the same for newspaper merger-and-acqui-sition activity.
Most pundits think, or at least hope, the newspaper industry is climbing out of the advertising slump. Will M&A activity follow? If history is any guide, the answer is yes, provided the recovery really takes hold this time.
The industry seems to be on 10-year cycles. The last two downturns in the operating performance of newspapers and newspaper M&A activity took place in the early 1980s and early 1990s. Each downturn has lasted two to three years. In each of the last two downturns, a “big deal” seemed to jump-start the merger-and-acquisition activity just as the operating performance for newspapers turned upwards.
Twenty years ago, in 1982, it was William S. Morris III who surprised the industry when he outbid several much larger companies with a $200 million acquisition of the CSX newspaper group, which consisted of the Jacksonville (FL) Times Union, St. Augustine (FL) Record, a weekly, and commercial printing plant.
The Morris Communications deal seemed to recharge the industry’s merger-and-acquisition activity at the same time newspapers started to recover from what one industry leader referred to as an “economic holocaust” of the early 1980s. In total 24 dailies changed hands in 1982 with transactional value of $380 million. Transactional volume increased in each of the next three years reaching $3 billion in 1986.
Ten years ago, in 1992, the largest daily newspaper transactions were both rather unusual deals. Gannett bought out its partner in the JOA in Honolulu for a reported $250 million, and Hearst acquired its competitor in San Antonio for $185 million. In total just 22 dailies changed hands with a combined transaction value of $341 million, about what it was 10 years before.
However, by the middle of 1993 the New York Times had announced its $1.0 billion acquisition of the Boston Globe, followed a year later by Morris Communications (once again) with its $286 million acquisition of Stauffer Communications.
Transactional activity picked up for the rest of the decade averaging almost $4 billion a year. Just months before the Boston Globe deal was announced a senior newspaper executive commented that business in the preceding three years was the worst he’d remembered in his 30 years in the industry. However, there was also a sense of optimism that the industry was on the upward slope of the cycle.
Deal volume bounced back in 2002 to more than $1 billion, after reaching a 30-year low of just $209 million in 2001. If, as we expect, deal volume picks up significantly in 2003, Lee Enterprises’ $694 million acquisition of Howard Publications in 2002 and the potential transactions involving Freedom Newspapers likely will be viewed as the sparks that got things going again.