Venture capitalists may break Northcliffe up and sell it off

By
Dominic Ponsford Financial analysts believe Northcliffe is likely to be
bought by a private equity firm that will cut costs and then sell the
group off piecemeal to the other big newspaper publishers.

They believe the asking price to be around £1.5 billion and say the deal could be done in as little as two months.

Some
believe a bid from one of the other big three regional publishers
(Trinity Mirror, Newsquest or Johnston Press) would be difficult
because of regulatory hurdles.

The competition authorities could
veto a deal that gives one player more than 25 per cent of the market.
Any bid from another major regional publisher might take up to a year
to get the allclear from the Competition Commission.

Another possibility is a bid from an overseas media company – in particular from Europe.

The
official explanation from Northcliffe for the sale is that it believes
the newspaper industry needs to consolidate further and that DMGT can’t
justify keeping the papers given the high price they are likely to sell
for.

Analyst Paul Richards, from Numis Securities, said bids from
Johnston and Trinity are unlikely because of the amount of debt both
companies already carry – some £600 million for Johnston and £500
million for Trinity.

He said: “Private equity looks like the most
likely option. There is a lot of private equity money around looking
for good homes.”

Private equity, or venture capital companies
such as 3i, CVC and Apex generally manage a company for up to three
years and then sell it, having made it worth more by cutting costs.
Richards said one possibility is that a venture capital firm will buy
Northcliffe and then sell it off piecemeal to other newspaper
companies; this would also stop one firm breaking the 25 per cent
barrier.

He dismissed suggestions that any buyer would be able to
increase profitability at Northcliffe to the same level as Johnston
Press.

He said: “Daily Mail run businesses on a long-term fully
invested basis and it would be difficult for anyone to make the 30 per
cent-plus margins of someone like Johnston – they are different types
of assets.”

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