This post originally appeared on LinkedIn.
As you would all know by now, Pearson sold the FT Group yesterday to Nikkei for US$1.3b. The FT Group includes FT, some magazines such as Banker, Investor’s Chronicle, a 50% stake in Russian Biz Paper Vedomosti, an-EIU type co called Medley Global Advisors etc.
The valuation, at ~35X the adjusted operating income of $37m (on rev of $559m for 2014) is amongst the richest valuations ever paid for a predominantly news media co. Most of FT’s european peers trade between 10-15x. (from Breaking Views).
However the multiples bid by Nikkei is not anywhere close to the highest though. This, I should think, is what Murdoch paid – about 48X the adjusted income – for Dow Jones, during the frothy days of 2007. For the record, Bezos paid about 17X for Washington Post in 2013.
So why is Nikkei paying about 3x the market multiple? Here are my thoughts. It also echoes some or most of the commentary around the transaction.
1) FT is seen as a newspaper that has perhaps made the most successful transition from a print to a digital brand – Of its 700K+ subs, about 500K are digital-only. It is also one of the most innovative on getting these readers to pay. It pioneered the metered payment model which others, most notably NYT, have adopted.
2) It also conforms to the desired model of content (subscription) revenue > ad revenue (only 37% in 2013 and trending downward) that analysts / investors like in newspaper companies. Also its digital subscripion revenue is bigger than its print subscription revenue. Media companies with higher subscription revenue are typically seen as less risky. Also, globally, digital ad growth has benefitted large networks (non-news cos) such as Google, FB, Twitter which have scale or new digital native models such as Vice, Buzzfeed, as opposed to newspaper or pureplay media cos.
3) It is one of the few global brands left (others incl WSJ, NYT, Guardian) and is seen as a trophy property. Also Nikkei saw a digital-strong, west-acceptable brand such as FT as a key element of its expansion strategy, and hence was willing to pay the premium. There is also an interesting post from Rob Cox of Breaking Views on why Japanese brands (including Nikkei) overpay, and it is worth a read.
I found it interesting that there was no PE bidder here. I would have expected a KKR, Warburg type mega PE to explore as well. Maybe they did and Pearson weeded them out early (as they preferred someone in the media business with impeccable credentials as the buyer).
Will this impact or pull up newspaper sector valuations? I don’t think so. FT is a special case of a trophy property that is seen as a digital pioneer, and has benefitted from that position. If NYT ever comes up, then I can see a similar or higher multiple (being the ultimate trophy property), but not otherwise.