June 28, 2016

In reporting disappointing financial results in February, Gannett CEO Bob Dickey told analysts, “I would be disappointed if there is not another acquisition to announce in the first half of the year.”

Gannett and Dickey delivered on the promise just under the wire late Monday by announcing the purchase of ReachLocal, a California-based digital marketing services and solutions company, for $156 million.

The $4.60 per share offer was almost triple the company’s closing price last Friday.  Gannett said that it expects to generate $320 million in additional revenue in the first year — roughly doubling its digital revenues.

However the company also indicated to the Wall Street Journal that the new business will not generate added income in its first year and only a modest profit the second.

ReachLocal has 16,000 small and mid-sized business customers and will take Gannett into markets where it does not have a local newspaper or website presence.

Integrating it into Gannett’s 107 markets will not happen until mid-2017, the company said, when contracts with other vendors lapse.

As print ads decline and digital ad revenues stall, Gannett and other newspaper companies have embraced digital marketing services as a new revenue stream — essentially helping local business clients with websites, email marketing strategies and metrics to track results of various marketing channels.

ReachLocal’s own site indicates that measurement systems are a particular focus — think of it as a sort of Chartbeat for a company’s marketing.

Although it’s not on the scale of Gannett’s bid for Tronc Inc., the acquisition represents a substantial ramp-up of its current digital marketing efforts.

The company also lost its ownership share of CareerBuilder and Cars.com, when it spun off a year ago from the TV part of the company (now known as TEGNA). So this fills back in digital holdings with a potential for growth.

The deal has been approved by both boards and is set to close next quarter.

ReachLocal reported a $6 million net loss on revenues of $79 million for the first quarter of 2016. Its shares had declined to $1.66 since an initial public offering in May 2010 and a peak price of more than $25 a share in January 2011.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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