Some believe that one of the principles of the news business is that you should report the news, not be the news. Glace Bay native Mark Lever certainly turned that upside down this week when he and his wife, Sarah Dennis, acquired all of the TC Transcontinental newspapers in Atlantic Canada. They merged the family-owned Chronicle Herald and its properties with the newly-acquired businesses to form SaltWire Network Inc.
While I don't have any insider information on the deal, I have recently taken a deep dive into the publishing industry with the launch of lokol.com, and so I thought I would share some observations that readers may find useful.
I'm guessing the sale price may have been around $30 million for everything. I’m basing that on a number of factors, including the price that Transcontinental paid SunMedia for 74 community newspapers back in 2013. (It shut down nearly one-third of those newspapers shortly thereafter.)
How was it financed?
Integrated Private Debt Corp, based in Toronto, financed the transaction. I’m guessing that the financing was a leveraged buyout, meaning that the assets of the acquired businesses are used as debt collateral, which likely includes buildings, printing presses, etc. This is what would likely make funding a news publishing business in the midst of a declining industry more acceptable to the financiers. (Fun fact: A leveraged buyout is essentially how most people finance the purchase of their own homes, but it's called a mortgage).
What does this mean for local jobs?
Lever has been quoted as saying that all 650 Transcontinental employees in the region will be offered jobs “in the same capacity with the same salary and same benefits that they have now.” But, as pointed out in the Contrarian, “Successor rights leave him little choice but to do that. When current collective agreements expire, all bets will be off.” See below for more on this.
What does this mean for local news?
Well, Transcontinental is a billion-dollar public company that is primarily focused on printing and packaging, not news publishing (despite owning over 100 newspapers). SaltWire is owned by a Nova Scotia family that has been in the local news business for over 100 years. And, it's run from Halifax by a Cape Bretoner. Will this make a difference? Only time will tell.
What about the labour strike at The Chronicle Herald?
Unknown. Perhaps the union will find it even more difficult to wait it out now that all the major newspapers in the region have merged. Or, maybe they will dig in deeper, and even double down by trying to rally the unions and employees at the other acquired newspapers. That could certainly be trouble for SaltWire.
After the long and bitter labour dispute, personally, I could not see a path for an independent Chronicle Herald to recover under the same ownership, even if the strike were settled in the near future. The loss of trust between management, employees, and advertisers is likely too deep to overcome. I assumed that Lever and Dennis would have to sell The Chronicle Herald to enable new owners and managers to start a fresh recovery. Perhaps they tried to sell and were unsuccessful. Or, maybe this big acquisition was the plan all along, or just an opportunity that came at the right time.
On a related note, the union has now suggested that Lever and Dennis were disingenuous for claiming that there was no money for The Chronicle Herald’s workers, and yet have money for this large deal. I don’t know if that is true or not, but from a business perspective, it is highly unlikely that any external investors would finance the operating costs of an existing business with no growth prospects. However, there are investors that will finance mergers, acquisitions, leveraged buyouts, and other such larger deals, particularly when there are significant physical assets available for collateral.
Will SaltWire Survive?
With good strategy and some luck, SaltWire will likely survive for some time. Perhaps longer than some of the community newspapers would have survived under Transcontinental. I say this because I believe that Transcontinental was already downsizing and consolidating its Atlantic newspapers. I saw no signs of a vision for growth, so the most likely scenario was a gradual decline - some faster than others.
Will SaltWire Grow?
I think SaltWire has a plan for growth. Perhaps not growth in print publishing, but a stabilization of the print newspaper business with growth in online advertising and complementary promotional businesses. Will they succeed? Well, this one is a lot tougher for them. They need excellent, not just good, strategy. Plus, a heck of lot of luck and good timing. And, a number of new people with significant expertise in technology, publishing, and business that can collectively work toward a common vision to manage and steer dozens of news entities scattered throughout the region. Here are some thoughts on all that:
- The news release about the deal suggests that the acquired newspapers are generally profitable. I believe this is likely true, as some papers in smaller news markets, like Cape Breton Island, have had virtual monopolies in print advertising. Atlantic Canada businesses also tend to be more old-school about advertising and continue to use print advertising, mostly because it is familiar and comfortable (and not so much because it offers a good return on investment). Being profitable buys some time.
- The Chronicle Herald competed with Transcontinental in many markets for subscribers and advertisers. Now that the competition is gone, this may allow SaltWire to shore up falling ad rates. It won't allow an increase in rates, but it can stabilize them for some time. And, there are many national advertisers that want to reach Atlantic Canadian consumers.
- Print advertising is in serious decline, everywhere. That’s been happening for a decade, but now many newspapers are falling off the edge of the cliff. SaltWire cannot escape this reality. The best they can do is use their new scale to streamline operations and lower costs, and hope to grow their revenues with online advertising and complementary businesses.
- But, can SaltWire streamline operating costs? Transcontinental was already cutting staff and costs. Today, much of the news in a community newspaper is pulled off the wire and has little or no local relevance. How much more savings can be found? Consider that many large publishers throughout the US and Canada couldn’t balance their books, despite having the scale that comes with owning dozens of newspapers in large markets. So, if they couldn’t do it, how will SaltWire?
- Another serious risk is management-employee relations. If Lever and Dennis were unable to settle a labour dispute at one newspaper, how will they manage dealing with employees at nearly 30 newspapers, in different locations, with different people and varying cultures, and multiple unions?
- Further to the above, SaltWire will need a lot of expertise in technology, publishing, and business. Recruiting may be difficult, as high-level talent will be reluctant to join a business in a declining industry, and one embroiled in a bitter strike that has influenced many people in Nova Scotia and hurt their brand.
- To grow their online advertising revenues, significant technological effort is needed. The Transcontinental newspapers tend to share the same online website platform, and despite making upgrades over the years, the websites deliver a poor user experience and weak advertising integration.
- The online advertising business is huge and growing, so there is certainly plenty of opportunity for SaltWire. And, having print newspapers can help drive a lot of traffic to related online properties. But, is it enough? Winning online has its own huge challenges, including global (not just regional) competition. Having legacy print businesses can get in the way as much as it can help. An excellent strategy is needed, along with a lot of good luck and good timing … both of which you cannot plan for.
- I’ve seen several businesses in Canada that financed their growth and acquisitions through debt instead of equity financing. Unfortunately, what often happens is that the predicted growth in revenue and profit does not happen fast enough to service the debt, and the business finds it can no longer cash flow its operations, which forces the investors to liquidate the business.
All this is to say that there is lots of opportunity, but also lots of challenges. We will all have to wait and see what comes next. I suspect the team at SaltWire may be thinking the same.
This article reflects my personal thoughts and opinions. I have no insider information and I have not interviewed anyone before writing this piece. My views are formed from being founder and CEO of lokol.com (and goCapeBreton.com), a local news and information website that serves several communities in Canada.