With Jasper Jackson
Talk about a reality check. Northcliffe Media, the DMGT-owned regional newspaper group that was as recently as 2006 up for sale for more than £1.3 billion, is now mooted to be sold for about £100 million to former News International, Mirror Group and Mecom executive David Montgomery (via The Times and FT.com).
According to those reports, Monty, or “Rommel” as he was unkindly nicknamed at the Mirror, wants to swoop in for the 118 Northcliffe titles and merge them with Illiffe, the small family-owned regional publisher backed by Yattenden Group. DMGT asked Ernst and Young last year to figure out how much Northcliffe is worth and the result is the Bank of Ireland, Lloyds and HSBC are willing to finance the deal, in a sector that hasn’t seen serious M&A action for many years.
£100 million would be more than five times Northcliffe’s 2011 operating profit of £17 million, on revenues of £53 million. That’s quite a climbdown from 2006 whe £1.3 billion and more were seriously offered to bidders, including an ultimately uninterested Gannett, at a P/E multiple of more than 10x. In other words, the investment value of one of the country's foremost regional media groups has halved in six years.
But now we think about it, what's a good price for a media business these days?
The Northcliffe deal shows backers aren't prepared to support crazy valuations, but new figures from finance consultancy Trillium do suggest that private equity and larger media companies are becoming slightly more bullish about what they are prepared to pay than they have been in the last few years.
Trillium's report shows that average P/E multiples for European M&A deals increased from 6.9x to 7.8x between Q2 and Q3 this year. Of course some sub-sectors of the media business are more appealing to backers:
-- B2B publishing and broadcast: The two areas where buyers were prepared to pay the highest multiples last quarter.
-- Consumer and B2B publishing: Multiples are up slightly on what they were four years ago when the financial crisis was looming.
-- Broadcast TV: Multiples are almost double what they were in July 2008, largely due to a huge jump in the last quarter.
-- Advertising: Ad firms aren't commanding as high multiples as broadcast TV or even B2B publishing, but they still account for nearly three quarters of the total value of M&A activity in European media.
With the challenges facing regional media, it's no great surprise the reported valuation of Northcliffe Media is below the average multiple across more healthy sectors, including consumer publishing as a whole.
Northcliffe is in one of the less desirable categories - consumer media - which attracts lower multiples, and it is in a sub-section of consumer media - the regional press - that is facing an especially tough future. It's a long way from the sweet spot investors are looking for.
In contrast, the acquisition of energy, mining and metals information provider Wood Mackenzie by Hellman and Friedman - the largest deal during the quarter in Europe - valued the company at £1.1 billion.
With Wood Mackenzie reportedly having made profits of £88 million last year, that suggests a multiple well above the average, and more in line with what bidders were being offered for Northcliffe six years ago.
The overall picture from Trillium's report does suggest greater confidence in the media sector over the last quarter - and the report's authors even go as far as saying investors may be becoming less concerned about the industry's reliance on print and ad revenues.
According to Trillium, total M&A activity in the media sector across the globe was $32.3 billion (£20 billion) in Q3 2012. That's up more than 150 percent on the preceding quarter, and the best quarter since the end of 2009.
That activity was the result of the size of deals increasing - the number of deals announced or closed during the quarter actually fell. That conflicts with the picture from another report by media investment bank, Jordan Edmiston (JEGI), which found the first three quarters of this year dominated by smaller deals. JEGI showed that only six percent were worth more than $100 million (£62 million), down from nine percent in the same period of 2011 - but overall M&A activity was still on the rise over the three quarters compared to previous years.
The suggestion the media M&A market is getting healthier comes with a caveat - the private equity market as a whole is on the up, and changing fortunes in media M&A could be down to wider confidence and not any material improvement in the prospects of companies like Northcliffe.