Valuing the Daily Telegraph
October 10, 2023
The newspaper industry has faced significant pressures in recent years; declining readership figures, increasing costs and the rise of digital media have all had a pronounced impact.
Just last week the Guardian reported HERE that the owners of the Times, Sun, Daily Mail and i newspapers are planning to “combine their printing operations” in order to cut costs amid reduced demand.
However, while the general picture in the newspaper industry has been one of decline (six national newspapers, for example, saw a drop in circulation of more than 20% from 2021 to 2022) there has been a significant buzz around the expected auction and sale of both The Daily and Sunday Telegraph, other and other print media assets in the group.
The FT wrote an excellent article about the valuation of the Telegraph over the weekend. You can see it here: How much is The Telegraph worth? | Financial Times (ft.com)
A wide range of potential acquirers are expected to bid for the Telegraph, including the owners of the Daily Mail, GB News and The News Movement. The sale of such a well-known brand always generates significant interest and has got us thinking about how we would go about valuing it was someone to ask us so to do. It is probably going to a competitive auction and there will be Competition and Markets Authority considerations for all.
Clearly the first consideration is who has hired us and when the valuation is commissioned. It is very different if the seller wants a valuation to provide a guide price e.g. for an auction versus a bidder (speculative or otherwise) who wants to know what price they have to pay to win the deal.
Regardless of who the client is there are standard processes to go through including data collection and analysis, consideration of macro-economic, industry and company-specific factors and identifying the right comparable transactions. In the case of a Telegraph valuation it would be necessary to look internationally for comparable deal data. The FT analysis on this issue is worth looking at as the journalists published a relevant list of the primary comparable trade sales in recent years.
As you know once the data is gathered and we know where we are overall, the next step is to do the maths on the numbers, followed by a consideration of enhancements and impairments for all those intangibles and risks that the numbers do not consider.
The press is speculating that the Telegraph group has revenues of £254mn and EBITDA of £46mn. For the sake of simplicity, if you use the BDO PEPI EV/EBITDA index multiple of 11.2x (this is definitely not a VC transaction!), this could suggest the business is worth £515.2m based on “the maths,” but that would not satisfy us that this valuation is right.
We would perform a DCF valuation (an ideal methodology for a mature business where the business model is well understood). We would be looking very closely at the revenue and profit lines of the difference group businesses, as it may be necessary to change the discount rate used in the DCF methodology for each business unit valuation.
Then there are other factors to consider in the cashflows.
Could a general election in the UK provide a distorting boost to sales in 2024 and have the forecasts been prepared accordingly or have 2025 sales and profits been based on 2024 number?
If we were working for the buyer who already publishes newspapers we would want to understand the impact of synergies on the cashflows and where they are being applied. Will the buyer pay a bit more for the Telegraph to obtain even greater synergies overall and if so what element of the value added generated for the enlarged group should be attributed to the Telegraph?
We would also be looking very closely at the group debt position to understand the enterprise and equity values.
Even the results from a DCF exercise would not give us the final valuation. The DCF may not recognise the intangible value in such an iconic family of brands. Maybe a new owner could exploit these better than the current owner? It also may not reflect the risks of e.g. inflation or rising staffing costs or the costs of redundancies. Do the cashflows allow for investment in digital technology, for example?
Only once we have considered these enhancements and impairments can we get to an evidenced based valuation.
What we do know is that there is an auction going on so an open market scenario is in place. There are purportedly lots of willing buyers and a willing seller in the form of Lloyds Bank. Is the buyer prudent? If it is a newspaper group, probably the answer is yes, but if it is a US tech tycoon wanting a trophy asset at any cost, possibly not.
If providing a valuation for a seller, the report should consider this issue in some detail so that the guide price is accurately set. Probably the report would explain that if a prudent buyer was successful it would be willing to pay £xm, but if it was a tech tycoon if would be £xm+.
If providing a valuation for the buyer we have to think about what return on capital they could achieve.
What else might we think about? We would look at the ability of the company to pay dividends and possibly a dividend valuation method could be used as a sense check. We might also look at what quoted publishing groups multiples are and if this should also be used on the basis that someone could be looking to flip the investment and list it as soon as market conditions become more favourable. We would definitely look hard at the value of the reporters. Were you aware that the most famous commentators can sell a paper almost on their own if the public really want to hear what they have to say? (That is why sometimes the best journalists and commentators write on a Monday – a day when most newspapers have less news to report and therefore people buy fewer copies).
Do call if you would like us to use this sale as a case study to help your colleagues understand valuations.
On another note, you will remember I wrote about Manchester United’s valuation earlier this year https://athlavaluations.com/blog/are-the-red-devils-overvalued/. That transaction still has not completed.
We will keep you updated if we hear any more about either of these deals.
In the meantime, we have just finished another tricky valuation. On the sign off call with the client, which took place just before I started this email, the management team told me that our team had been “brilliant and a pleasure to work with”. That was a genuinely lovely thing to hear on a Monday.
We will always help your clients quickly and particularly like doing “tricky” valuations where the true value needs to be articulated in a way that everyone can understand and, crucially, accept. Just in case you are not yet aware, we have valued dozens of companies, shareholdings and other assets in the last year, ranging from mature family businesses to start-ups. The valuations can range from very little to £100m+, so please do not only think of us as a valuer of little start-ups.
