National Media Associates

May 2012 Newsletter

What real buyers are looking for when purchasing a company like yours

Although our activity level has increased compared to this time last year, and the previous year, we consistently see buyers looking for companies and communities that share a basic formula.

Obviously, as we progress from this “Great Recession” in most of the country, revenue growth and earnings growth are the chief engines that drive any transaction. They are the chief factors when attracting a buyer.

A majority of community newspaper companies have pared their expenses to the point their EBITDA figures are much stronger than before, or at the very least are reflecting stabilization, hopefully above 10% of revenue.

And some clients, depending on the strength of their communities and their regions, are now seeing earnings or cash flow between 20-30%, although those upper levels are not as commonly seen as they were a decade ago.

The strength of your market area will obviously be a very strong influence for all buyers. Whether your sales tax revenues have increased, decreased or are at the levels they were 20 years ago, will play a role.

Population growth, or lack of growth, is another obvious factor. We are seeing interest from buyers - individual buyers or corporate buyers - who have a very direct interest in the mid-South and South where retirees are planning to move.

Because the baby boom generation is now retiring at a rate of 10,000 per day, many locations in the mid-South, South or communities close to water are all seeing positive views from buyers with whom we consistently deal.

If you determine you may be a potential client of ours this year and would like to discuss the next step you should take, we look forward to hearing from you.

Ed


Awareness of all options, tax liabilities crucial when considering sale

When negotiating any newspaper ownership transfer, it is, of course, critically important to gain full knowledge of all potential tax liabilities. Each situation is unique so there is no “cookie cutter” form for a successful deal.

With the current capital gains tax rate at 15%, it is obviously best to conclude a sale in which the proceeds are taxed at the capital gains rate. However, in many cases, the way in which stock was purchased or held; the corporate structure; or how ownership is allocated among family members can lead to taxation at personal marginal rates, double taxation, or inability to realize a step-up in basis.

These are all real challenges that can greatly impact what a seller will actually realize after taxes and expenses.

There are alternatives to a straight transfer of ownership that can delay and even mitigate taxes. We regularly work with our consulting CPA to produce scenarios that will lessen tax burden and allow owners to achieve better results.

There exist a number of alternative approaches that help owners preserve the wealth they have created.

In years past, we were most concerned with corporate structure, e.g., whether a newspaper company was a “C” corporation, an “S” corporation or an LLC. Today, there is much more to consider on the tax side than simply how a company is designated.

Another real challenge is the general moderation of newspaper company values over the past seven years. We have been active in the market since 1995 and have well-informed value calculations that accurately reflect the current market. Again, each situation is unique. However, we find a good number of owners who have a value idea in their heads, but have never really received professional assistance regarding true values.

The price an owner paid for his newspaper company originally, or how the company was valued when it was passed on to the current owner, will have great impact on tax liability. It is important to go over these ratios carefully and fully to get the correct picture of how much an owner will actually realize.

If you have a community newspaper company that is doing well and you are considering a sale, please give us a call. The environment for community newspaper companies has become more complex and you are going to need all your options in order to make the best deal.

Tom

February 2012
March 2012
April 2012