Gannett, the largest newspaper publisher in the US, has always had a slightly ambivalent relationship with Newsquest, its UK subsidiary. It’s twenty-five years since the Newsquest board reluctantly put to shareholders Gannett’s £922mn bid “while not a compelling proposal”.
Shareholders approved the deal anyway which began an odd relationship punctuated by the $1.4bn sale of Gannett itself to the debt-laden New Media/ Gatehouse (which reverted to using the Gannett name) and an operating income loss of $450mn in 2020. It looked then like a classic piece of disastrous M&A “catching falling knives” as newspaper revenue continued its precipitous decline. Meanwhile, profits of then then £300mn-revenue Newsquest were being swallowed by a pension fund deficit, which had Gannett executives hinting of a possible sale to would-be UK buyers – if only they could “solve” the historic debt.
Suddenly, it’s all changed.
Gannett’s share price has gained more than 70% in the last 12 months (it had lost 9% in the previous five years), with half-year 2024 digital revenue up by 6%, digital subscriptions by 22%, digital ad revenue by 4%, and average revenue per digital user by 20%. In the previous year, 2023, digital had become 41% of total revenue and its $27.8mn loss was almost two-thirds down. The company is predicting an inflection point this year as digital’s expected 10% gain outpaces the decline in print which is expected to produce – a big breakthrough – breakeven in 2024, with perhaps 55% of revenue coming from digital.
The publisher of USA Today and 220 newspapers across the US even repaid more than $140mn of debt in 2023, though borrowings are still about $1bn.
It’s even better at Newsquest, in the UK.
Its portfolio of 150 local news brands and 70 magazines has increased EBITDA profit by 22% during the past three years on revenue up by 6%. A profit margin of 22% is close to its historic best and a 14% growth in revenue/head identifies a company which seems to be managing reinvention in some style:
| Newsquest £mn SnapShot | 2023 | 2022* | 2021 | 2020 |
| Revenue | 191.9 | 201.0 | 149.0 | 146.8 |
| Ads | 119.0 (62%) | 124.6 | 89.4 | 86.6 |
| Readers | 59.5 (31%) | 62.3 | 50.7 | 51.4 |
| EBITDA | 41.3 | 31.6 | 36.9 | 33.8 |
| Margin | 22% | 20% | 25% | 23% |
| Headcount | 1,896 | 2,264* | 1,630 | 1,668 |
| Rev/ head | 100k | 70k | 91k | 88k |
But, while the inclusion of acquisitions means the UK group revenue declined by 4% in 2023 (but +4% in first-half 2024), that too is another standout for the company. It is 30 months since Newsquest acquired the assets of Archant, the former family-owned eastern England newspaper group bankrupted by a hopelessly indebted pension scheme. What had been almost a monopoly in its thriving region was hobbled not just by pension debt but also by a stubborn reluctance to divest its legacy printing plants. Back in 2020, when Archant had £55.8mn revenue (almost 40% the size of Newsquest), it employed more than 900 people and was lossmaking.
In 2022, Newsquest paid £11.3mn for the publishing assets of Archant (ie excluding the pension liabilities, to which it made a fixed contribution). It promptly sold-off 15 specialist magazines for a total of £1.6mn. From the resulting net investment of £9.7mn, Newsquest generated £853k EBITDA in 2022 and £8.87mn in 2023.
You’ve read it right.
Newsquest’s acquisition of Archant, the publisher of four dailies and 50 weeklies (with revenue of £36.4mn in 2023) achieved payback in just 22 months. And, in 2024, the former Archant will generate profit (again) close to that £9.7mn net acquisition price – due principally to saving 380 jobs and £10mn costs.
The consistently profitable Newsquest – which now accounts for some 10% of Gannett’s $2.6bn total revenue – has had some other good news for its parent.
The legacy pension fund – to which Newsquest has contributed an additional £140mn during the past eight years – is now fully funded. It means that, not only only is the UK subsidiary profitable (and growing again), but it is now also able to pay dividends to Gannett – totalling £93mn so far, 60% during the last two years.
That pension debt had been 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 corporate failure) would inevitably require accelerated pension fund payments. Given a one-time top-end valuation of Newsquest as being, say, 4 x £30m EBITDA, any requirement to pay the pension fund, say, £50m would have been adding a 40% premium to the price. And it might have been expected to get worse.
But the subsidiary that its US parent had once wanted to sell-off and cash-in is now a growing highlight of Gannett.
What is the UK’s second largest local news group (after Reach Plc), has a portfolio of more than 250 local news brands (including 26 dailies) and magazines online and in print. It claims an online audience of 51mn monthly users and 4mn weekly print readers.
It had been formed from the merger of newspaper publishers formerly owned by Reed Elsevier (RELX) and Pearson before a £205mn MBO in 1995, backed by KKR, and the 1999 acquisition (at the dawn of the internet) by Gannett for 11x EBITDA. It has consistently been one of the UK’s most successful news groups. And now it is generating real profits for its parent, the company can boast out loud about “our view that local news publishing does not have to be in decline…indeed our view is that, although the industry employs many fewer people than in the print-dominated era….the local news sector is very much alive and kicking”.
Newsquest’s consistent out-performance during what had been a troublesome period may be down to its insistence on staying “local” and resisting the temptation to create sales and editorial “hubs” often many miles from their audiences. While these hubs have been obvious ways for many publishers (perhaps none more than the market-leading Reach) to reduce costs, they clearly risk undermining the sense of community on which regional media depends.
The 2024 positive spirit of Newsquest draws on some of its key UK regional markets to illustrate its success. In York, with a population of 148k, its York Press website is visited at least monthly by no fewer than 78% of those people – and 30% of them visit 15 times. In Worcester, it’s a similar story with 73% of the 106k population as website visitors and Wrexham with 76%. But, while these high levels of engagement show how successfully Newsquest has been able to monetise its regional news centres, it is notable that – in the April-June 2024 financials – print still accounts for 68% of total revenue.
To reinforce the likely future pressures, it is notable that – of the company’s 26 paid-for daily newspapers – no fewer than 19 have circulations of less than 5k and some are just 2k. And, during April-June 2024, only 40% of its advertising is digital (ie c25% of total revenue) and just 9% of its readership revenue is digital (3% of revenue). Those quarterly numbers show that print print ads (32% of revenue) and print circulation (27%) continue to dominate the revenue although a 6% revenue increase on 2023 (with increases both in print and digital) is some achievement,
But the print dominance is the other side of claims that the UK company has grown digital sales so successfully through its 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.
In some ways, Newsquest’s industry-best financials serve to counter the assumption (including by its parent company) that local news media must – apart from all else – accelerate the move towards digital subscriptions. But – 25 years after Gannett paid a quickly-regretted £922mn ($1.5bn) for the UK company – it really is surprisingly good news.
