The UK’s largest regional-only publisher Newsquest is believed to be in exclusive negotiations to acquire the Archant eastern counties news group.
Archant is being sold only 18 months after being bought out of administration (freed of what had been a crushing pension debt) by private equity firm RCapital. It publishes dozens of local news papers including Ham & High Express, Ipswich Star and the Eastern Daily Press along with 75 specialist and local magazines.
The company had 2020 revenue of £55.8m (2019: £78.7m) and an EBITDA loss of £1.3m (£4m profit). There is some expectation that the company will be sold for as little as £13m (£5m consideration + £8m debt).
Last year, Archant sold The New European monthly magazine for £467k including liabilities, to former executive Matt Kelly and a consortium which included Mark Thomson (ex CEO of the New York Times), and Lionel Barber (ex editor-in-chief of the Financial Times).
Newsquest has been a story of remarkable success in a UK regional news market littered with casualties.
In 1999, Newsquest – which by 1998 had revenue of £306m and £81.4m EBITDA – was acquired by US newspaper group Gannett for £922m (11 x EBITDA). In the intervening 22 years, during which ownership of Gannett itself has changed, Newsquest has seemed to trade successfully through the storms which have rocked newspapers everywhere:
The profit margins tell an amazing story during a period of continuing revenue decline. But the real story is that the majority of the company’s free cashflow has been devoted to paying down its pension fund deficit. During the five years 2016-20, the company made pension fund payments totalling £104m, while dividends to its shareholder were a mere £18m (in 2018). Gannett has been forced to watch and wait.
In June 2021, Newsquest agreed with pension fund trustees to pay a further £15m. But, although the £800m pension fund is now believed to be in surplus, the uncertainty both of future investment returns and also of a newspaper publisher’s ability to survive and be able to meet its commitments means the company may have to keep making the top-up payments.
That’s the reason why – even when Gannett was briefly owned by private equity in the US and was courted by UK investors wanting to acquire Newsquest – nobody could prise it loose. Any change of ownership (bringing with it an increased risk of failure) would inevitably require further pension fund payments.
Given a possible top-end valuation of Newsquest as being,say, 4 x £30m EBITDA, any requirement to pay the pension fund £50m would be adding a 40% premium to the price. That might be an obstacle to anyone seeking to buy Newsquest. But while the company operates as successfully (and may now find some juicy ‘merger’ economies) Gannett may be reasonably relaxed. Hence the deal.