News & Analysis

driven by the PitchBook Platform

Apollo doles out $1.8B loan for newspaper merger

The New York-based private equity firm tapped into its booming credit business to help create the biggest newspaper chain in the country.

Request access to private equity data

Apollo Global Management has pushed hard into the US media industry in 2019, building up a portfolio of television stations through a $3 billion deal with Cox Media.

The New York-based private equity firm also tapped into its booming credit business to help create the biggest newspaper chain in the country.

On Thursday, GateHouse Media parent company New Media Investment Group received approval from shareholders to acquire Gannett in a cash-and-stock deal worth roughly $1.13 billion. The move will create a newspaper empire with roughly 260 dailies and hundreds of weekly publications across 47 states, including titles such as USA Today, the Austin American-Statesman and the Detroit Free Press. Announced in August and officially closing Tuesday, the deal will allow Gannett to keep its name and headquarters in McLean, VA.

To finance the acquisition, New Media, which is managed by SoftBank-backed Fortress Investment Group, tapped Apollo for a $1.8 billion loan over five years at a whopping 11.5% interest rate, with proceeds going toward the purchase price and repaying existing debt. While New Media CEO Mike Reed has characterized it as a bridge loan that the company expects to pay off early, that would require significant savings for a pair of companies that have been struggling to meet revenue goals along with the rest of an industry battered by cratering print advertising sales.

If Gannett falters, it would have to spend roughly $2.3 billion over the five-year life of the loan, according to a report from the NewsGuild-CWA, a union representing journalists. Perhaps more troubling: Both companies did not produce the combined free cash flow in 2018 that they will need to make annual debt payments that will total $350 million or more.

Unsurprisingly, critics of the deal have said revenue that should be going to investments in Gannett’s ongoing digital transformation instead of Apollo, which has built a credit empire with $201 billion in AUM. As part of the loan, Leon Black’s outfit will receive two observers on the company’s board of directors and could eventually elect two voting members if debt-to-revenue levels reach a certain threshold.

“The deal is bad for journalists, it’s bad for readers and it’s bad for the future of local journalism,” NewsGuild President Bernie Lunzer said in a statement. “Local papers will likely vanish, jobs will be slashed, and reporting will suffer.”

It will no doubt put intense pressure on Gannett management to cut costs. Poynter, a nonprofit journalism school, has already indicated there could be thousands of layoffs from the roughly 24,000-person workforce to help meet the $275 million to $300 million in projected annual cost-saving synergies expected over the first two years of New Media ownership. Per reports, activist investor Leon Cooperman has already cast doubt about the newly combined entity’s ability to stem revenue losses, saying “nobody believes any of the numbers coming out.”

Apollo apparently has some faith, perhaps in part because Gannett grew digital subscriptions 27% YoY in 3Q, while New Media’s digital subscriptions jumped 65% YoY during the same period, per USA Today. The new Gannett is also expected to increase other revenue streams through events, digital marketing and more.

Here’s to hoping they are successful. The future of print journalism in the US is depending on it.

Featured image via artisteer/iStock/Getty Images Plus

  • adamlewis.jpg
    Written by Adam Lewis
    Adam Lewis was a financial writer covering private equity for PitchBook. He covered dealmaking, company and investor news for the PitchBook newsletter and blogs about the intersection of private equity and politics. A graduate of the WSU’s Edward R. Murrow College of Communication, Adam was previously a sportswriter covering the Mariners and Seahawks.
Join the more than 1.5 million industry professionals who get our daily newsletter!