Johnston Press commissions AlixPartners for possible administration

15 November 2018

With the printed press facing deflating revenues and declining readership in the UK, troubled newspaper publisher Johnston Press is preparing to hand control to its lenders as the search for a rescuer enters its final stages. In preparation for this, AlixPartners has been appointed to handle the firm’s potential insolvency.

Johnston Press is a multimedia company currently based in London, United Kingdom. Its flagship titles include national newspaper the i, The Scotsman, the Yorkshire Post, the Falkirk Herald, and The News Letter in Belfast. It operates around 200 other newspapers and associated websites around the United Kingdom and the Isle of Man.

Over the past decade, readership of leading newspapers in the UK has dwindled noticeably, with the traditional print media increasingly struggling to justify the advertising revenues which were once its life blood. In the case of Johnston Press, this has seen its properties become heavily encumbered with debt, and the company subsequently took the decision to place itself for sale in October 2018. However, the weight of its debts meant that many interested buyers declined redemptions offers. 

Johnston Press commissions AlixPartners for possible administration

As first reported by the Sunday Telegraph, specialist restructuring consulting firm AlixPartners has been appointed to handle a potential insolvency and pre-packaged sale of the 251-year-old publisher. Johnston Press is still seeking a buyer via the formal sale process launched last month, however, AlixPartners is understood to have been asked to prepare for the cessation of payment and the sale of the group's other assets to its creditors.

According to Sky News, Daily Mail owner DMGT is said to be readying a bid for the i newspaper, which Johnston Press bought from Evgeny Lebedev’s ESI Media for £24 million in 2016. At the same time, another option could include a solvent debt-for-equity swap; however, this would require approval from shareholders. Norwegian entrepreneur Christen Ager-Hanssen holds a quarter of these shares, and could block such a deal, or a sale of the i. These options seem unlikely, then, and while Johnston Press’ Directors are legally obliged to explore all options before calling administrators, they seem to have little room for manoeuvre.

Chief Executive David King is now reportedly seeking a solution before Christmas. AlixPartners has been involved in talks over the future of Johnston Press for over a year, but with the festive period now looming fast, moves towards a handover have accelerated. The company’s future may hinge on the fate of its pension fund, which has a £40 million deficit.

This also suggests that a pre-pack administration could well be in the cards, as it would allow a buyer to discard the least profitable aspects of the business, like the much-maligned move of Sports Direct for House of Fraser. Part of the firm’s pension scheme could then be offloaded into the Pension Protection Fund (PPF), the Government-backed lifeboat, which would mean reduced pay-outs for retirees.



8 tips for successfully buying or selling a distressed business

18 April 2019

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.