Platinum Equity Buys Time In Newspaper Deal

Perhaps having learned some lessons from those earlier investments, the Los Angeles-based buyout shop waited until it was able to buy the newspaper for a song, and didn’t weigh it down with debt. Most importantly, the firm has significant downside protection in the form of real estate and other assets.

Platinum Equity reportedly paid less than $50 million in equity this spring for the San Diego Union-Tribune, acquiring it from the Copley family. It was a stunning price given that, according to press reports, the paper, which had a weekday circulation of 270,000 at the time of the deal, had generated about $100 million in cash flow as recently as 2004. Some immediately dismissed the deal as little more than a real estate play given that the paper’s San Diego headquarters and assets are reportedly valued at around $50 million. As a developer told Forbes in July, “They bought the land and got the newspaper free.”

But the firm appears prepared to roll up its sleeves and help the San Diego paper figure out its future, in part by steering it toward producing more local coverage, and toward generating more advertising revenue from small businesses. The structure of the deal actually gives the paper serious breathing room to implement strategic changes. “We’re buying time for this paper to figure this out, to crack the code in the changing paradigm,” Mark Barnhill, principal, told Buyouts. Platinum Equity is in a position where it could make a ridiculous return if it does indeed turn the Union-Tribune around, and won’t lose much, if anything, if the deal fails.

Indeed, the deal has little in common with Avista Capital Partners’ March 2007 acquisition of the Minneapolis Star Tribune, a paper with a daily circulation of more than 360,000 at the time of that deal. Avista Capital paid $530 million for the Star Tribune, which seemed like a decent deal considering that seller McClatchy Newspapers paid $1.2 billion for it in 1998. But Avista Capital only fronted $100 million of equity—at least double the total Platinum paid for the Union-Tribune—and the paper, struggling to pay off its debt, staggered into bankruptcy in January with $661.1 million in debt and $493.2 million in assets.

It would also be foolish to bet against Platinum Equity given its track record in turnarounds. As of June 30, the firm’s first fund, a 2004 vintage pool of $700 million, had generated a 62.5 percent net internal rate of return, and had returned to investors 2.5x the capital it deployed, according to the firm. (The jury is still out on Platinum Equity II LP, a $2.75 billion closed in 2008, which is about 40 to 45 percent committed). “Look, these guys tend to be much more contrarian than their competitors,” said Erik Hirsch, CIO of Hamilton Lane Advisors, an investor in Platinum funds. “They’re not going where everyone else does.”


The Platinum Equity team assigned to the deal includes Paul Bridwell, a turnaround specialist who worked as a senior executive at several Platinum Equity companies and who is chief restructuring officer at the Union-Tribune; Louis Samson, a principal at Platinum Equity who led the deal; and David Black, a newspaper publisher who owns the Honolulu Start Bulletin and several small Canadian newspapers, and who advises Platinum Equity on the Union-Tribune and other media deals.

Team member Barnhill, who arguably brings the most experience to the table, is a former senior executive at the Los Angeles Daily News, where he was assistant managing editor, city editor, and Washington bureau chief. “I know how it feels to pull the late edition off a running press, ink still wet, and marvel at the miracle that’s sitting in your hands,” Barnhill wrote in an e-mail.

In discussing the capital structure, Barnhill acknowledged that the real estate “got us comfortable there were tangible assets that provide some downside protection,” but he dismissed the idea that the deal is a real estate play. Barnhill described for Buyouts the outlines of the strategy Platinum Equity is enacting at the paper, some of which may already be paying off. The paper is expected to post a profit—albeit a small one—of $5 million for 2009, up from a reported $1 million the year before, but still down from $37 million in 2007 and $67 million in 2006.

The first thing Platinum Equity did once it gained control of the newspaper was to fire hundreds of people to bring its cost structure more in line with its revenue. In May, with the ink still wet on the deal paperwork, the firm cut 112 people, followed by another 192 in August. At the same time, the firm improved the lot of remaining employees, reversing pay cuts initiated by the previous owners and re-instating the newspaper’s 401(k) match. The firm is also re-vamping the Union-Tribune’s Web site and entering into Web partnerships with Monster, Yahoo and to bring in additional revenue.

The firm is also pushing for dramatic changes on both the editorial and sales side of the business. The sales team, which had been encouraged to target large national advertisers—“big game,” as Barnhill called them—is being re-oriented to focus on local advertisers. The team is now armed with “micro-zoned” advertising rates to attract smaller businesses that couldn’t afford to advertise with the paper before.

To help generate this local advertising base, editors at the paper are also steering reporters to generate more of what they call “hyper-local” news. In September the paper launched a promotional campaign, “Here To Stay,” touting itself as the leading media company in the region, with an estimated 1.15 million weekly readers. “Local advertising will definitely be stickier than national advertising,” said Tom O’Connor, a managing director who specializes in media deals at the New York boutique advisory shop Berkery Noyes & Co. “There’s more interest in the local high school than in national news.” Indeed, other newspapers that have switched to a more local emphasis are seeing some success. Sales are up, for example, at The Guadalupe County Communicator in Santa Rosa, N.M., a paper bought by a former reporter for the Rocky Mountain News.

Avista Capital pursued a similar strategy at the Star-Tribune, but ran out of time given the heavy debt load on the company. Now Platinum Equity appears to have found a way to finance the transition, and a lot of people throughout the media and finance worlds will be paying close attention to see whether it can work.

Barnhill said that the firm, while actively looking for other print media acquisitions across North America, doesn’t feel like it knows exactly what will solve the publishing industry’s problems. “We haven’t showed up with a secret formula that will solve all the woes in the newspaper industry,” he said. Platinum Equity at press time was reportedly in the running to purchase The Boston Globe and BusinessWeek magazine.

“We have a lot of experience with troubled companies in changing markets, and we believe we’re uniquely equipped to help a newspaper like the Union-Tribune stabilize its operations, survive this transformative period, and re-invent itself for long-term success in the future,” Barnhill added. “It’s not our job to turn around the whole newspaper industry, but rather to be successful with this newspaper in this market.”