The Gannett-owned subsidiary Newsquest Media Group – which is the UK’s second largest regional news company (after Reach Plc) has acquired the Norwich-based Archant from Rcapital which has owned it for just seven months after the family-owned company had collapsed under the weight of pension fund debt. The undisclosed price is believed to be some £10m in cash.
Archant owns a portfolio of 100 local news and magazine brands principally in the east of England, and also publishes a portfolio of regional County Life magazines. Its news brands include the Eastern Daily Press, the East Anglian Daily Times, Norwich Evening News, and Ipswich Star. It employs 760 people.
The deal did not include eight of Archant’s specialist magazine titles: Air Gunner, Airgun World, Sporting Shooter, Clay Shooter, Rifle Shooter, France Magazine, French Property News and France Property Shop, which are being sold separately. Several other specialist magazines were also acquired by Kelsey Media in February.
Newsquest was acquired by US newspaper group Gannett in 1999 for £922m (11 x EBITDA). In the intervening 23 years, during which ownership of Gannett itself has changed, Newsquest has seemed to trade successfully through the storms which have rocked newspapers everywhere:
| £ | 2021 est. | 2020 | 2019 |
| Revenue | 150m | 140m | 188m |
| EBITDA | 35m | 32m | 38m |
| Margin | 23% | 23% | 20% |
The profit margins tell a remarkable 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. And it might get worse.
The arithmetic of historic pension funds does not, of course, do justice to what has arguably been the UK’s best performing regional news group for the last 25 years. Its pre-Archant 120 news brands and 29 magazines, have an audience of 39m monthly users online and 5m weekly readers in print. Its 22 dailies are likely to account for a large majority of the revenue and profit.
The UK regionals’ league table (by circulation / readership) may be estimated as:
- Reach Plc 29%
- Newsquest 25%
- JPI/ National World 12%
Newsquest’s consistent out-performance during a troublesome period may be down to its insistence on staying “local” and resisting the temptation to create sales and editorial “hubs”. While these hubs are ways to reduce costs, they risk undermining the sense of community on which regional media depends.
Newsquest’s digital revenues now account for one-third of all revenues (alongside more or less equal shares for print ads and copy sales). Digital sales have been grown through the UK application of Gannett’s LocalIQ – a digital marketing agency which enables small local businesses to buy ad space efficiently in Facebook, Google et al, alongside its own sites and newspapers. This may now account for as much as one-third of Newsquest’s digital revenue, perhaps 10% of all turnover. If faster growth is possible, LocalIQ will provide it.
But these are worrying post-pandemic times for newspaper publishers which may face 50% increases in the cost of newsprint. Print and distribution costs – also susceptible to rising fuel prices – may further squeeze profit margins. We might expect more closures and consolidation.
Further consolidation still seems inevitable in UK regional news, even though the regulatory hurdles remain from times when these traditional media had more power and profit. There is little direct competition now between the three largest local groups.
National World Plc is positioned as an acquirer but Newsquest may be just too big for David Montgomery’s £73m listed company, however much he may want it. Intriguingly, National World’s largest (24%) shareholder, Mediaforce, is an advertising sales house for most of the local media companies. So Mediaforce owner Malcolm Denmark might just become a significant a player in any future consolidation.
Reach Plc (the former Trinity Mirror) may also be wondering whether it needs all 110 regional newspapers and nine national newspapers in its go-digital crusade, especially if it is preparing to fund an all-digital acquisition which will swing the business away from print – as you might expect.
After a few years of speculation that Newsquest would be sold by a US owner who was presumed to be disinterested, the obvious question – in a slowly improving market – is whether Gannett (now a regular listed company, not the private equity vehicle it once was) will want to sell out of the UK. That’s why everyone is watching the Newsquest pension fund. The Archant acquisition may not indicate Gannett’s thinking either way because the deal – with very little portfolio overlap – might be expected to enhance Newsquest’s profitability and value.
