What's your exit strategy?
How can I increase the value of my newspaper prior to a sale?
Within the aging U.S. population is a larger than usual group of aging self-employed business people approaching retirement and the sale of their business. This group includes many smaller publishers counting on that sale as part of their retirement. The expectations of many publishers are based on a multiple of the publication's annual revenues. In today's market, unless the publication has extraordinary cash flow, that multiple to revenue paid will be between 50 percent and 100 percent. The weighting of the multiple is tied to several factors including revenue trends, household penetration in the market, print competition, general health of the economy in the markets served, the stage in development of a digital strategy, as well as the growth potential.
More importantly, today's buyers place much heavier weight on the newspaper's cash flow generation. In today's market, buyers are typically paying 3.5X-5.5X adjusted cash flow (available cash flow after all expenses including owner compensation, with add backs for any interest, amortization, depreciation, expenses that would not accrue to a buyer, and owner perks). Weighting is tied to the same factors mentioned above, with cash flow trends taking center stage. In the sale of a newspaper to a strategic buyer, operating and sales synergies may kick into place, driving cash flow upward. To a strategic buyer, a higher multiple paid at closing may translate into a much more conservative multiple once those synergies kick into place. It is always important to remember that a newspaper will not typically sell for a price beyond what the debt service will require. And a bank is certainly not going to finance a transaction where there is not enough cash, day one, to cover the debt service.
There are several steps publishers can take to potentially increase the value of their publication in a sale. Putting these into action over a 3-5 year period should set the stage for a smooth and rewarding transaction.
1) Specify Goals And Objectives. Achieving optimal value begins by clearly articulating the seller's goals and objectives. These will be both financial (liquidity, sale price, taxation/estate planning) and non-financial (succession, legacy and reputation, employee and stakeholder concerns and other special interests). Sellers need to ask questions such as: To whom do I want to sell/transfer the business (owner-operator, strategic buyer/competitor, financial investor)? How long do I want to work/be involved? Do I want to maintain some upside/risk? Are there employees or others whom I want to protect/reward?
2) And Determine The Right Time To Sell. Value is optimized when a sale is proactive rather than reactive. A three- to five-year timeframe allows the company to demonstrate consistent growth that will optimize its appeal to buyers.
Beyond financials, this timeframe enables the company to demonstrate long-term relationships with customers and vendors. It also provides sufficient time to ensure that an effective support team is in place long before a potential transaction, allaying buyer concerns that the business value might be too dependent on the entrepreneur.
3) Have All Records Ready Before You Go To Market. Automate your accounting systems and make sure you can provide detailed profit & loss statements and balance sheets for the past three years and as far into the present year as reasonable. Get your taxes in order and your filings up to date. Maintain detailed advertiser and subscription lists, newsstand sales.
4) If a key member of your staff has left, replace them – especially on the advertising sales side. There's no sympathy from buyers if your sales are down because you are under-staffed. Positive revenue trends are very important. Don't retire before you sell, run your business as if it were "Not for Sale." Continue to promote your business, actively pursue new advertising accounts and subscribers. Keep your circulation audits up to date. Buyers are looking for predictability and avenues for growth, not a static or declining business.
5) Implement those cost-cutting moves now. If there are some logical steps you can take to bolster your bottom line, without hurting the quality of your pub or your household penetration, implement them. These steps could include re-bidding your printing, eliminating your in-house printing operation if it is no longer cost-effective, cutting circulation to areas where you are not generating significant advertising support, further automating your operations. It may also mean partially re-vamping your staff.
6) Be competitive. Consider bolstering your household penetration to a level advertisers will embrace while keeping your competition at bay. Mine your data (assuming you have collected it – it's never too late) and work with your advertisers to develop digital and mobile marketing campaigns that reach your subscriber base.
7) Merchandise within your pages. Are there key advertising categories you can secure by adding content within your pages (print & digital) or via special sections that will draw readers to their product and services?
8) Move beyond the PDF. You need a digital strategy. Although you may be trading print dollars for digital dimes right now, the bottom line is your readers, ages 18-40, have fully embraced and now rely on much of their news and actionable information to be received digitally (that's tablets, phones, laptops, your car dashboard). And buyers have begun placing higher value on operations that have the makings of a well-rounded digital strategy in place. If the average visitor to your site is spending less than three minutes per visit, they're scanning not reading. And it is time for a re-set. If your ads are static and there is no merchandising within your digital pages, there's a really good chance your advertisers are not getting much, if any, bang for their buck. Yes, you may very well need to bring in outside talent to create and implement a strategy that vaults you into the digital age. Money well spent.
9) Get your receivables and payables in order. And clean up any legal issues. You can't deliver title to your property unless liens can be satisfied at closing, there is a plan in place to pay off that long-past-due printing bill, and any litigation is behind you. Want to guarantee a major price reduction? Have a large percentage of your receivables over 90 days.
10) Understand the market value of your publication. Take all your emotion out of the valuation by having an objective third party (an experienced newspaper broker like W.B. Grimes & Company) assess the re-sale value of your publication.
11) Good tax planning is also essential to a successful sale. Consult with your accountant, financial planner and attorney to explore the optimum way to potentially structure your transaction. But keep in mind, these advisers will have little to any knowledge of newspaper operations or comparable transaction data.
12) Use A Broker! Selling a publication requires an ever-increasing level of sophistication and a great deal of your time. Most publishers have neither, nor do they have access to established relationships with the broad range of publishing and financial buyers that an experienced broker will have. You should choose a broker as part of your exit strategy planning team (three years before you are ready to list).
Lewis Floyd is senior associate with W.B. Grimes & Company, with responsibility for the Southern states. Established in 1959, Grimes has represented publishers in the sale and acquisition of over 1,500 media properties. Contact him at (850) 532-9466 or firstname.lastname@example.org.
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