Until 200 years ago, Norwich, in the eastern county of Norfolk, was England’s second largest city after London. It had been colonised successively by the Romans, Vikings and, more peacefully, by the Dutch.
Today, the 200,000 population of “the most complete medieval city in the UK” live among cobbled streets, half-timbered houses, an 11th-century cathedral, 12th-century castle and 14th century monastery. In 1701, Norwich was the home of England’s first non-London newspaper, and (a century later) of the legendary Colman’s English mustard.
The Colmans are one of the founding families which continue to own the Archant newspaper group which has dominated Norfolk since 1845. The company’s secretary maintains a family tree charting the relationships between the four founding families and the 3,000 descendants who are its current shareholders, the aristocracy of East Anglia. The protective family trusts and old-fashioned civility prompt comparisons with DC Thomson, in Scotland, or even Hearst, in the US. Both are much larger and more successful family-owned companies, of course. Norwich wins on history.
In the 21st century, the picture-book English city has to be content with accolades such as “the happiest place to live”. But not right now. The city’s football team (owned by media cook Delia Smith) has just been relegated from the English Premier League, and there’s a fire-sale of its 175-year-old newspaper group.
This week, the Archant management team has been busy giving presentations to media and investment companies. At least three are believed to have made indicative bids by yesterday’s deadline (16 July). Bidders may have been attracted by the traditional monopoly of news and information in what is the UK’s tenth largest business centre just 120 miles from London and not much further from Amsterdam.
Would-be buyers have been regaled with the strengths of Archant and its 150-year-old flagship, the Eastern Daily Press, including:
- £80m revenue and ‘normalised’ EBITDA of some £5-6m (pre-Covid)
- 5m copies monthly of 50 newspapers and 20 magazines across the UK
- A current digital audience of 9.2m monthly uniques, which in 2018 generated some £19m (22%) of revenue
Executives are using those scores to put on a brave face. Chair Simon Bax says: “The transformational strategy my leadership team and I have implemented over the past year has enabled our organisation to move forward with much needed clarity and focus. Obviously Covid-19 has been a considerable setback, but each and every day we are beginning to see the momentum return.” Well, yes.
But Archant is a fire-sale because:
- The Covid crisis has shredded advertising – and wiped out the profitability of a company whose revenue has been 50% ads
- The Eastern Daily Press has lost 70% of its copy sales since 2000
- Even at pre-Covid profitability, Archant’s value has been squashed by a pension deficit that may now be £50m
Few of the bidders will have been put off by the pension debt which has been costing Archant some £3m a year. The repayments are part of an 11-year agreement with trustees to pay-off the deficit. But a review later this year is expected to sharply increase these payments because of the falling value of investments – and fears for the company’s future.
The “solution” lies in a so-called ‘pre-pack’ arrangement in which a UK company can be declared insolvent and then sell off its assets – with the pension liabilities being (mostly) assumed by a government agency. It worked in 2019 for the former Johnston Press whose assets were bought by JPI Media, now owned by the company’s former lenders.
JPI is profitable and may even be one of the bidders for Archant. Its owners see the opportunity for further consolidation of UK regional newspapers, perhaps including Newsquest whose US parent Gannett was last year acquired by private equity. Such consolidation may (eventually) even tempt Reach Plc, the UK’s largest newspaper publisher, to divest some or all of its regional operations in order to raise funds for digital expansion. Almost everything is in play.
Archant is not quite what it seems. The Norwich-based company is best known for the Eastern Daily Press and also publishes newspapers throughout the east, south east and south west of the UK. But some 50% of the revenue and even more of the profit (pre-Covid) is actually generated by 20 “county” magazines including Cheshire Life, Lancashire Life, Essex Life, Somerset Life, and specialist brands like Pilot, Canal Boat and Agricultural Trader.
More significantly, the magazines – which generate more than half of Archant’s profit – employ only about 10% of its 1,000 people. This company really is two quite distinct businesses and magazines are by far the strongest.
In the 10 years during which total revenue has halved to £87m, the collapse has been solely due to the newspapers. And, since the Eastern Daily Press itself had been making some 25% of the total profit, many other newspapers in Norfolk, Hertfordshire, Essex, Devon and elsewhere may have been unprofitable even before Covid struck.
One problem has been that, until November 2019, Archant printed most of its own newspapers, so cutting back the portfolio may not always have been a profitable option. It has now out-sourced its printing to News Corp – and saved at least £2m in annual costs.
It had taken the company a long time to follow the example of almost every other news group and sell-off its printing presses. But that gain – like the €680k grant from Google to develop an online social history service from its archives – is upside for the next owner of Archant. So is the digital upside for a news business which is still mostly print but which was making good progress with local paid-for digital content, and great video which has been getting 1m monthly views. This unplanned sale process will give a buyer some great profit-leverage – if the price is right.
Bidders may include the Antwerp-based Mediahuis which publishes daily newspapers in Belgium, the Netherlands and Ireland, and owns Dutch and French TV and radio stations. Its €145m acquisition of Irish News & Media last year led to speculation that it would seek to expand into the UK. It was speculatively linked to the Telegraph Media Group whose family owners were known to be considering a sale process – before the virus outbreak. Archant would be more affordable but more tricky too.
No bidder may be more determined than David Montgomery whose National World Plc has been linked with almost every UK newspaper group in the past 12 months. He is the former tabloid editor who became CEO of the Mirror Group in the years after the death of Robert Maxwell.
Ever since he helped Rupert Murdoch to force through tech change in the UK’s national dailies, as editor of the News of the World, in the 1980s, Montgomery has been a passionate advocate for newspaper transformation. He was editor of Today, the UK’s first colour tabloid, before becoming CEO of Mirror Group Plc. In 1999, after seven years of pushing through cost-savings and coping with the chaotic aftermath of Maxwell, he quit after well-publicised boardroom disputes. The company’s market cap – ahead of its merger with Trinity Plc and the first dotcom boom – was then £1.4bn. It’s now £200m.
Montgomery is what some Brits call “Marmite”: like the dark, salty spread, people either like or dislike him. Journalists are often negative, perhaps because 1) he was among the first in the UK aggressively to attack the historic costs of newspapers; and 2) as a journalist himself, he had somehow “betrayed” his tribe by wanting to change almost everything. But that was then.
It is more than 20 years since he started to develop ideas for partnerships between newspaper companies that would facilitate the sharing of technology and back office services. He wanted to put his ideas into practice with Axel Springer which was briefly interested in a break-up bid for the Mirror Group after Montgomery had left it in 1999. Six years later, he founded Mecom which acquired, among others: Berliner Zeitung and Hamburger Morgenpost, in Germany; Orkla Media, of Norway; and Wegener, in the Netherlands. In 2014, the listed company was sold to De Persgroep, in Belgium.
His next venture was much more successful. In 2012, he formed Local World through a merger of more than 80 newspapers, including 16 dailies, from DMGT and Iliffe News & Media. In 2015, he sold the business to his former company Trinity Mirror (now Reach Plc) for £220m – some 6 x operating profit. Its 21% growth in digital revenues all but offset the decline in print advertising.
Montgomery had taken unwanted newspapers and more than doubled their value in less than three years. He (and some of the investors who have joined him again) are hoping for a repeat.
National World Plc listed in September 2019, with the declared objective of “creating a leading position in UK news publishing …. by implementing a strategy of consolidation of audience reach, digital focus and modernisation”. Montgomery last year failed to acquire the former Johnston Press whose investor owners (with their eyes on the exit) might now want to do a deal with him and, perhaps, Archant too.
Montgomery wants to acquire a whole range of publishing assets. But the first deal is the tough bit. Once he gets that, he will have the synergies he needs to snap up many others. Will Norwich be the start of the next chapter in one man’s story of news media transformation?