So who will buy the Daily Telegraph and for how much? Some thoughts

The Telegraph Media Group – which owns the Daily and Sunday Telegraph, and The Spectator magazine – is up for sale after receivers took control of the group. Some thoughts below on who will buy the assets (and will not), how much they will pay and what it will mean.

1. First, some thoughts about the process by which TMG has been put up for sale. It does have something of the Ernest Hemingway quote of “How did you go bankrupt? Two ways. Gradually, then suddenly” about the whole process. Usually, with an asset of this size and stature, there would be a long period of negotiations over debt refinancing. Obvious, negotiations have been happening in the background over the debt but it seems to have moved to the endgame very swiftly. with Lloyds Banking Group pursuing what seems like a hard line. One underlying question is what is driving this line. Maybe one indication that things were not going smoothly, in retrospect, was that TMG had not published its 2022 financial numbers (for 2021, it published them in May 2022) nor an update on Q1 23 subscriber numbers (which it had stated would be available in May 2023).

2. Now onto the assets themselves. How attractive is TMG to a buyer and what would be the sale price? With such a high-profile media asset which comes up rarely for sale, it comes down to both the underlying attractiveness of the business and the perceived ‘non-financial’ benefits such as perceived political influence and being a ‘trophy asset’. It is stating the obvious but the price received – plus who will buy it – will depend on which of the two considerations hold more weight.

3. On the financials, the last published financials are for the year to December 2021 (as TMG is not a listed company, there is not the same time constraints on publishing results). FY21 revenues were up +4% to £245 million driven by a growth in digital subscriptions, with digital subscription revenues up 40% to £44.1m. Adjusted EBITDA rose 8% to £40.4m. The adjusted EBITDA margin of 14.7% is solid – the margin for the Daily Mail assets (when they were disclosed when DMGT was listed) tended to be in the high-single digit to low double-digit range, which probably reflects the weighting towards subscriptions (46% of 2021 revenues). To put it simply, the financials – at least for 2021 – are more than respectable, especially for a ‘newspaper’ group.

4. Regarding the subscription numbers, again they are generally solid. TMG has released subscription numbers for 2022, with total subscriptions reaching 733.7K at the end of December. That is over 13K up from December 2021’s figure of c. 720K, with digital again driving the growth (+42K to c. 587K, suggesting print down nearly 30K). The Average Revenue per Subscriber figure was flat YoY at c. £175, probably reflecting the decline in print and / or pricing offers offsetting underlying price increases.

5. However, these ‘point to point’ YE numbers hide what might be some issues on the subscription front. On releasing its 2021 financials, TMG had stated that it had over 740K subscribers at the end of March 2022, i.e. 7K more than in December 2022. TMG did state that it had lost c. 4.7K subscribers in December 2022 but that still means there was leakage from March to December. Almost certainly, that would have been driven by the print side but it does raise questions over possible issues of churn, gross subscriber additions etc including whether there has been any slowdown in digital subscription take-up and / or an increase in churn.

6. What about TMG in terms of the quality of its business? The percentage of revenues from subscriptions (which is likely to be 50%+ for 2022) is very good, reducing the dependence on advertising. Moreover, TMG has been a pioneer at selling ancillary services – insurance, travel, wine etc – to its customer base (in recent years, the anecdotal suggestions have been that c. one-third of profits came from these extra services) which, again, is valuable, and further reduces the reliance on advertising.

7. The ability to sell these services also reflects something on the customer base, which is (generally) older and wealthier. While this is not necessarily an attractive proposition for (most) advertisers, it is when you are selling services that these groups are likely to want and where there may be limited supply elsewhere. Moreover, to its readers, the TMG is a trusted brand reflecting a certain set of values – which makes it easier to sell such services to customers.

8. Newspaper wise, like all publishers, TMG faces pressure in print although, since TMG has kept its circulation numbers private since 2020, it is hard to tell the scale of any decline (here are the latest newspaper readership numbers – LINK). In December 2019 – the last stated public numbers – the Daily Telegraph had c. 318K readers and the Sunday Telegraph just over 248K. At March 2022, the print subscriptions were c. 147K and it would be expected these form the majority of readers. To put in context, according to the latest circulation numbers, the tabloids are seeing the sharpest falls in readers.

9. The Spectator (we have not spoken much about that) has actually been doing well in subscriptions, at least based on what we know. In February 2022, it reported that it had reached an all time high of 107K, up 16% YoY and continuing an upwards trajectory (LINK). That is likely to have continued and it reflects an asset that has a strong voice and attractive readership.

10. What about the non-financial side of things, i.e. the ‘Trophy Value’? There is no doubt that the assets have a high profile. The newspaper was founded over 165 years ago and, as a paper of the centre-right, probably has the most influence of any of the major newspapers, with the possible exception of the Daily Mail titles. That effect is compounded by the influence of The Spectator, which is highly influential in media circles. In the current UK Government, the Telegraph’s assets carry a lot of weight.

11. However, any buyer is going to be looking forwards and not necessarily backwards. The next General Election is due – at the latest – within the next 18 months and the current opinion polls suggest that Labour is on course for a majority, potentially large (LINK) My own view – as someone who is active in the political betting markets – is that the election is likely to be a lot closer than what is being suggested but there is no doubt that Labour has a good chance of forming the next Government. In that sense, the influence of the Telegraph’s assets within Government are likely to very much decline.

12. That may impact on the potential list of buyers (onto that now). While it is unlikely to put off those looking at the assets for fundamental reasons or because they like the Telegraph’s and Spectator’s political views, it may discourage those who see the titles as a way to influence the British political system unless they are willing to accept a period of at least several years where the titles may not have a huge amount of influence.

13. For that reason, and also because of the potential political sensitivities involved, my view is that we are unlikely to see buyers, particularly from more controversial countries, emerge for the assets, especially as there are likely to be a number of other bidders (see below). Such buyers are unlikely to like the attention but, more to the point, they may not feel it is worth it given the likely potential lack of upside (politically).

14. On who could buy. As mentioned at the start, you are likely to have two sets of potential buyers – business-driven and ‘sentiment’-driven. On the business side, you can probably discount several of the groups who have been interested previously. Axel Springer (which owns, amongst other titles, Bild, the largest German newspaper) is now majority controlled by Private Equity firm KKR and has been focusing on more US-orientated digital-focused assets such as Business Insider and Politico. While TMG’s assets do fit – theoretically – into its worldview, the weighted of TMG’s newspapers (at least) is likely to put them off. Belgian publisher Mediahuis (which owns the Irish Independent) may be the most likely non-UK trade buyer.

15. I also do not think either Reach (which owns the Mirror, Express and Star titles) or the Murdoch-controlled News UK would look to buy the assets. Both are going through their own issues (Reach has had somewhat of a torrid time share price wise over the past year, with questions on digital advertising growth for example) and the integration of the Telegraph assets would be a distraction and – certainly with Reach – may not fit into their view of the digital world. With News UK, while there may be a question of a ‘last hurrah’ for Rupert Murdoch, business considerations are likely to triumph. The same also applies to David Montgomery, and National World – I think the size of the assets would be too much.

16. That leaves Daily Mail and General Trust, which owns the Mail titles, the i, Metro etc. I see that as the most likely potential buyer (on the business focused) side. It already runs the Telegraph’s advertising revenues side (which is a big plus), its audience profile is similar in age and social demographic to the Telegraph, its political stances would be aligned (and would create a media powerhouse on the political right), would probably be interested in taking all the assets and, not least, is likely to see the Telegraph’s subscription focus as potentially bringing lessons for the Mail titles (or at least some of them). Plus, Lord Rothermere (DMGT’s owner) has long been rumoured to be interested in the titles.

17. The obvious question is on the regulatory front. We do not know the overall share of the newspaper advertising market that the two papers would control if merged (although my estimates would be around 35%+) but there would almost be a regulatory investigation. However, DMGT may have several pluses on its side. Firstly, the Competition and Markets Authority has shown more concern re ‘forward’ issues such as digital’s influence rather than ‘historic’ concerns. It may think that blocking a merger would be seen – like with the blocking of regional newspaper mergers a decade ago – as a outdated way of looking at the world. Secondly, the move would get political support on the Government benches. Thirdly, DMGT could point to Reach and News UK as similarly sized entities (and the fact Reach was allowed to buy The Express and Star titles is also a plus).

18. What about sentiment buyers? One question is whether the titles are split i.e. The Spectator is sold separately from The Telegraph papers, which may increase the range of buyers for at least one of the assets. Here it is probably best to think of wealthy individuals who are right-leaning in their opinions so it is entirely possible we could see the likes of a Paul Marshall (who co-founded hedge fund Marshall Wace) step in or Sir Jim Radcliffe who founded Ineos, if he did not win Manchester United. There is then the likes of Jeff Bezos who owns the Washington Post (and a large chunk of Amazon), Again, never say never but, for the first two, the presence of DMGT may put them off and, for the latter, the UK may not be his focus if he wants political influence.

19. On the price. Again, it depends whether the bidding attracts more sentiment-bidden buyers or it is more driven by fundamentals. The Barclays Brothers paid £665m for the assets in 2004. When they were privately floating the idea of selling the assets in 2019, it was rumoured the price was no more than £200m. Given TMG’s performance, and the £40m of EBITDA, my feeling is a price of c. £500m probably feels about right i.e. 12.5x adjusted EBITDA, which would be a solid multiple. While this would be far lower a multiple than Nikkei paid for the FT (which was more in the low-20s) in 2015, times have changed and TMG’s assets do not have the same financial importance.

20. In conclusion, DMGT seems the most likely buyer and a price of £500m+ the likely range. That may change if a trophy buyer decides to bid high but, at the moment, DMGT seems the most likely winner.

As usual, this is not investment advice.