The pending purchase of the San Diego Union-Tribune by a private equity firm opens an interesting new chapter in the newspaper industry’s history. Not much is known about Platinum Equity other than the company has completed more than 100 acquisitions in the last 15 years and one of its partners is a successful newspaper owner. For a company that has spent $27.5 billion on acquisitions, it’s website is almost defiantly sparse, as if to reinforce that it doesn’t have to tell anybody anything it doesn’t want to.
Based on our experience with similar takeovers in the past, here’s a short FAQ of what we think you can expect. Also be sure to check out Alan Mutter’s analysis for the views of a professional investor.
What’s a private equity firm?
It’s basically a group of rich people who pool their money and invest in companies that they think are undervalued. They bring their expertise to bear to quickly grow the value of the assets they acquire and then sell them, hopefully at a substantial profit. There are a lot of private equity companies out there, but you don’t hear much about them because they prefer to work in the background and they’re largely unregulated.
Why did this one buy the Union-Tribune?
For starters, it probably got a great price. Private equity firms look to unlock asset value and Platinum Equity must believe that it can quickly make changes that will substantially increase the value of the paper. What those changes are is still unknown. Because private equity firms don’t have to tap into the lending market to any great degree, they are among the few institutions that are capitalized to make big purchases right now. That’s another reason we can presume they got a great price.
Platinum Equity would not have bought the Union-Tribune unless the partners believed that the business was undervalued. That’s another indication that perhaps the market has hit bottom. The big question is what changes the partners believe they have to make to increase the value of the asset. That’s going to be the really interesting question
So what’s going to happen now?
In the short term, not much. The new owners will spend the next couple of months on paperwork to get the deal done. However, things are likely to happen pretty quickly after that.
The partners in these private equity firms are usually decisive, no-nonsense people who don’t fear making tough decisions. It’s likely there will be downsizing and probably a lot of it since the new owners don’t have the sentimental attachments of the current owners. One thing is for sure: the new owners will treat the Union-Tribune as a business and probably a short-term business at that. Professional investment firms rarely work on timelines of more than three to five years. If they haven’t sold the business and doubled their money by that time, the deal is considered a failure
Is this good for the Union-Tribune?
It probably is. Platinum Equity spokesman Louis Samson said the right things in endorsing the value of the Union-Tribune brand: “We will bring a strong operational focus that helps ensure the Union-Tribune not only survives in this market, but thrives.” This is good news, because professional investors are as likely carve up and destroy a company as readily as they can build one. It appears that the new owners are focused on stabilizing and supporting the brand, but that doesn’t mean they will avoid hard decisions. It should be noted, by the way, that the company’s press release about the acquisition makes no reference to continuing the Union-Tribune s as a newspaper
Is this good for the newspaper industry?
Yes, because it is one sign that the market has become attractive again. With the exception of a few small papers in Connecticut, nobody has bought a major newspaper in over a year. The fact that someone finally did buy one may open the door for other investors to come forward.
Platinum Equity’s moves certainly will be closely watched. It will also be interesting to see how a professional investment firm treats its new asset. While Platinum Equity has some experience in the market in the person of partner David Black, it is not a professional publisher. The partners will be looking at the Union-Tribune as an asset and trying to maximize the value of the asset. In other words, their minds won’t be clouded by assumptions of what a newspaper should be. It will be just a business to them. Since the problems in the newspaper industry are fundamentally business problems, it will be interesting to watch what a professional management firm does to solve them.
What would you do if you were an employee of the Union-Tribune right now?
I’d think hard about how to justify my value to the organization, not in terms of my length of service or number of awards but rather relative to the company’s bottom line. When business managers with no newspaper background took over at Tribune Co., they started measuring journalist productivity by column inches of copy. The new owners at the Union-Tribune probably aren’t that dense, but they will almost certainly take a financial analyst’s approach to managing the operation. Employees who can’t demonstrate why they are critical to the business will be most at risk, as will those who carry the highest salaries.
Comments
This entry was posted on Thursday, March 19th, 2009 at 2:22 pm and is filed under Facebook, Fake News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
This is very interesting for a number of reasons, mainly as you point out it is the first major print publication purchased in over a year. What troubles me is I am trying to believe in an “online” or “digital” version of the Union Tribune that would be successful by any measure without a print version. While certainly we will see with the Seattle Post Intelligencer, the Rocky Mountain News and now the Christian Science Monitor an “Online” only version, I keep wondering how many people are going to visit the website and read, let alone pay for, this content online? If the demographic trends are anything to consider the majority of people 18 to 24 are not reading newspapers, so what would cause them and anyone who did not already value the former “print” product bother? The only thing I can see is the content and in the case of San Diego Union Tribune if there is no longer a print version they would go online for the “local” content. Then again I cannot see how this will work without a print edition, even if it is published four days a week in tabloid format or whatever is the most economical to produce. I can see in the business-to-business media world I work in, only titles with “brand equity” i.e. they have a print edition that produces content of value are succeeding online for the most part.
All that said maybe it will be that Platinum Partners will figure out a way to do this, I certainly would hope so for all of us who value newspapers!
There’s no question that professional journalism has value, regardless of the medium. The question is how to find the stasis point where organizations of professional journalists can sustain themselves by delivering that value. The U-T brand has a long and respected history in San Diego and that, too, has value. It can get the U-T access to people and places that ordinary citizens can’t. It also has the trust and respect of many people in the area. None of those assets would be lost if the company abandoned print. The question is how to preserve them in a new form and deliver a unique product that has value that people will pay for. We’re still working that one out.
I agree 100 percent with Todd. Without the print editions, newspapers are dead. These online goals are a joke. Nobody is going to pay for online content. The online ad revenue is also a joke. These papers would have staffs of about 15 people. They couldn’t even cover the city or town effectively where the newspaper is, not to mention the surrounding towns.
La prensa norteamericana escribe la crónica de su propia muerte…
Publicaciones como la de Paul Gillin: “Newspaper Death Watch”, o el artículo de Jill Lepore en New Yorker hablan de muerte sin tapujos. Pese a ser un tema recurrente, la amenaza de la prensa papel coincide con una crisis planetaria necesitada de camb…
I’ve long wondered why anyone listens to the nonsense that so many newspapers put out — most of them wind up supporting the local power structure, no big surprise.
When I lived in San Diego the U-T insisted on printing smarmy local stuff on the front page on Sundays. Major stuff happens elsewhere in the world, but the front page gets stuff about the local little league or whatever. Wow.
Does anybody miss buggy whips? Not too many years from now, kids will be asking their parents “What’s a newspaper?”
Actually some really good ones may survive. That’s progress. But please, no bailouts!