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What Can We Expect from GateHouse-Gannett Deal?

The parent company of GateHouse Media has acquired Gannett, publisher of USA Today and operating of digital marketing platforms like LocalIQ. The cash and stock deal is worth about $1.38 billion and is expressly aimed at driving out costs overlapping between the two media companies while accelerating digital transformation.

Whenever deals like this happen disruption usually follows, particularly those deals that are framed around a desire to drive out duplicative costs. The companies estimate cost savings will be in the range of $275 million to $300 million over 24 months.

The deal is expected to close by the end of this year. Gannett shareholders will own 49.5% of the new company and (GateHouse owner) New Media Investment Group shareholders will get 50.5%.

Both companies are large and the merger creates a massive media company. Gannett, of course, publishes USA Today with 1.2 million daily readers and 125 million monthly unique visitors to its website. Gannett owns a total of 109 local media organizations. GateHouse operates 154 daily newspapers across 39 states.

Combined, the new organization will have media properties in 47 states, with combined revenues of $4.3 billion and $500 million in EBITDA, before synergies.

The following chart from an investor deck issued yesterday on the deal breaks down what each organization brings to the deal.

In some respects, this deal feels like the multiple mergers among large Yellow Pages companies the occurred from the early 2000s and extending through the relatively recent (2017) acquisition of YP by DexMedia.

Each of these deals was designed to squeeze out enough cost to allow the successor entity a chance to live to fight another day while trying to figure out a sustainable transformation strategy. This tactic arguably bought the Yellow Pages industry time, but it didn’t ultimately solve the key question, which is how to remake an industry when its profitable core business is no longer supported by the marketplace.

So we believe it’s fair to ask the question, is one mega newspaper company in a stronger position to effect a pivot than two large publishers? Our sense is the answer is, ultimately, no. What it does have is a longer runway to figure it out than it would as two smaller companies.

One of the many core challenges the new organization faces is how to combine and modernize the two sales organizations. If history tells us anything, it’s that solving the sales equation is perhaps the biggest challenge for large legacy companies going through digital transformation.

Large, well-compensated sales organizations accustomed to selling static media products are generally ill-suited to the task of helping SMBs acquire the digital stacks that make sense for their businesses. Managing this transition not just in what is being sold but also how it is being sold is painful and it rarely happens quickly enough or goes far enough to succeed.

Both traditional media companies have digital marketing businesses which they categorize as “complementary diversifies revenue.” Gannet has LocaliQ, which including several components, including ReachLocal, Wordstream, and SweetiQ.

GateHouse owns ThriveHive, a digital marketing SaaS platform that has been very innovative in figuring out how to acquire small-business customers efficiently through a product-qualified lead strategy. GateHouse also owns UpCurve, a Google Cloud premier partner that helps business organize their operations in the cloud.

Combined, the two organizations claim 33,000 active customers for their digital services properties. This represents a drop in the bucket given the scale of the parent organizations.

Our sense is that the new company will look at how to bring these properties entities together to create a more powerful competitor in the growing and competitive space offering SaaS-based digital marketing services to SMBs. Our hope is this is done thoughtfully to preserve the excellent work both sides have done to advance the ball in the SaaS for SMBs space.

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