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Market Outlook
(continued)
Purchase Price Must Make Sense for All
Several factors are critical when a purchaser acquires a community newspaper that he plans to personally operate. They include the following:
After completely evaluating the finances, the buyer should expect to receive a livable income from the newspaper. This could include discretionary income in addition to salary.
The newspaper must be able to pay down any financing required by the purchaser over a five to seven year period after he makes a down payment if the business is financed. This includes either bank financing or a seller’s note.
It is desirable that the business should pay a reasonable rate of return on the down payment invested.
Many publishers who sell their family business want all cash. However, the vast majority of community newspapers sell with some level of seller financing when purchased by an individual or family. Private equity groups and newspapers chains are more likely to be all cash buyers.
There are several reasons for seller financing.
| 1. |
An individual who can afford to pay all cash for the business in many cases would prefer to buy a larger and more expensive newspaper business and use his available cash for a down payment.. |
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2. |
Frequently the buyer will expect to pay less for the business if he provides all cash. |
| 3. |
Seller financing frequently has a higher rate of return and above market interest rates than taking a lump sum and investing it. |
| 4. |
Some buyers see it as a red flag and hidden problems if the seller is not willing to carry a note for a portion of the purchase price. It is in everyone’s best interest that the buyer will be successful as the new publisher. Aside from advertisers and employees, the community depends on it. |
In addition to a satisfactory financial offer, the seller must feel comfortable with the prospective buyer. He should be convinced that the right buyer has the temperament, qualifications and experience to be successful.
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