Around a six years old digital business news website ‘Quartz’, is sold for around $75 to $110 million. It managed to earn a revenue of $30 million a year. The payout also inclined on how well it achieves its targets.
It leaves us at a standstill. The question that – ‘How much will a newspaper with $30 million in revenues fetch in the present-day market?’ Let us assume that it fetches a 10 per cent profit on an operating basis. The figures might somewhere lie between $11 million.
The leading newspaper agency New Media Investment has laid out roughly $1 billion for acquisitions over the last five years. Shocking, isn’t it? According to the officials of the company, the rate is around 3.5 to 5 times multiple of the operating profit.(Choose A Name for your Business.)
“It might not be worth anything, We don’t have a group of buyers for that kind of situation — there is no way to monetise it” – says Larry Grime, retired CEO of Grimes, McGovern and Associates.
According to Grimes, it would be different if the firm incurred the revenues of $100 million. But the grim reality is that a paper would sure be a big fixer-upper project for a buyer.
However, according to Reed, the CEO of another leading agency mentioned in an interview, “We don’t value properties on a multiple of revenue. However, rather than a newspaper with no returns, it is far better we start looking at how much we could earn after we work our magic and then pay one or two times. But that can be a risky proposition.”
“Newspapers have been trading in a tight range of 4 to 5 times EBITDA since 2012,” – says Owen Van Essen, president of Dirks, Van Essen, Murray and April.
Prices have gone down. It is due to revenues and profits are falling that the valuation multiple has declined.
Van Essen expects the valuation formula to stay about the same for decades to come.
Franchise or brand value do not seem to enter into the calculation, may be indirect.
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 analyse deals by looking at whether valuable real estate comes along with a paper and its digital sites battling to stay profitable.(Choose A Name for your Business.)
When John Henry bought the Boston Globe for $70 million five years ago, he got the ageing Morrissey Boulevard headquarters and a big chunk of adjoining land in a developing neighbourhood. It finally sold the same for $81 million last December.
When an investment fund, Revolution Capital Group, bought the Tampa Tribune for $9.5 million in the year 2012, the deal included the company’s headquarters also. Revolution ended up selling the building and land near downtown for $17.5 million in 2015.
So sometimes land is a significant sweetener, but not in all situations. The real estate may mortgage, or it may, for various reasons, not quickly sold for reuse as offices or for development.
