Whether Holding or Folding: Manage for Profit, Create Value

Ultimately every decision you make as a publisher should be aimed at creating value. The odds of making the right “value-added” management decisions on a day-to-day basis are substantially greater if you understand those factors driving a publication’s market value.

Whether the buyer is an individual or corporation, in reality, he’s purchasing three things: (1) quality of the market as measured by growth in retail sales, population, and household income; (2) strength of the franchise as measured by dominance through market penetration and share, readership and leadership; (3) adjusted cash flow. When all three of these stars are properly aligned a publishing business commands top dollar.

Except for the small non-daily stand-alone mom ‘n pop newspapers (annual gross less than $700,000) the traditional dependence on gross revenue as a multiple for defining market value has given way to adjusted cash flow. In fact, today savvy buyers of publishing businesses worship at the altar of adjusted cash flow. While gross revenue is not irrelevant, clearly it’s taken a back seat to adjusted cash flow in today’s marketplace.

In any event, multiples of adjusted cash flow define market values more than other factors. Adjusted cash flow is EBITDA (earnings before interest, taxes, depreciation, amortization) plus reasonable add-backs (non-recurring and highly discretionary expenditures).

In the current market, adjusted cash flow and revenue from central web and sheet-fed printing plants command lower multiples than revenues generated from the typical newspaper operation. The conventional newspaper revenue mix of display and classified advertising, preprint inserts, legal notices and circulation earn substantially higher multiples than the more capital and labor intensive printing operations. These realities clearly deserve consideration when assigning priorities for your precious sales and marketing energies.

Those of us who manage publishing business transactions apply multiples to adjusted cash flow and gross revenue to arrive at market values. When determining the appropriate multiples particular attention is focused on the quality of a specific newspaper market and strength of a newspaper’s franchise in that market. These elements then are played against current realities of supply and demand based upon our daily involvement in buying and selling publishing properties.

Whether selling a newspaper today or in three years, smart operators “filter” their primary decisions through the cash flow factor. By this is meant — if your decision does not enhance, or at the very least preserve cash flow, it is time to fall back and re-examine, regroup. Why dart in a direction that does not promise increased value? On the other hand, how does the status quo rate when subjected to the same “filter” of cash flow?

Comments and questions are welcome and may be directed to Dave via email: dave@gaugermedia.com or at (360) 942-3560