Framework
Newhouse's acquisition rule: what profit can it make in 10 years?
Sam Newhouse valued each newspaper by the profit it could produce over the next decade. If a paper could earn $8M over 10 years, paying $4M was easy, which meant he was comfortable paying roughly 6-8x annual earnings.
“Basically the way that he thought about it, he was like, his whole thing was like, how much profit can I make in 10 years off of this particular newspaper? That's how he would value things. So he was like, okay, I can make $8 million in profit over the next 10 years off this newspaper. I have no problem buying it for $4 million, which is like, I think at the time that like he would buy them for 6 to 8 times annual earnings because he was like, I'm looking for 10 years at a time. That's how I measure it.”
Steal thisValue an acquisition by its total profit over 10 years and pay no more than about half of that.
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