"I buy newspapers to make money, to buy more newspapers to make more money." - Roy Thomson
This is part of my operating manual series opening up the playbook of private equity and company building luminaries. Check out past ones with Mark Leonard, Andrew Wilkinson, Robert F. Smith, Joe Liemandt, Felix Dennis and John Malone.
Update: this is a work in progress. Stay tuned for more…
Most of this comes from a biography that has been out of print for 30 years.
Who is Roy Thomson? Why is he interesting?
Roy Thomson (1894 - 1976) is the founder of Thomson Newspapers which went on to become Thomson Reuters ($55 billion market cap today).
He came from an underprivileged home, had a slow start in business (He was still broke at 40 years old), and went on to turn his family into the wealthiest family in Canada ($40 billion).
Roy started with just a single Canadian newspaper, the Timmins Daily Press, acquired in 1934. He went on to buy 200+ newspapers all over the world and ran them efficiently while leaving their editorial operations independent.
Roy’s playbook heavily inspired Mark Leonard’s Constellation Software which has bought 500+ software companies and runs the same efficient and independent operations playbook.
What did Roy Thomson do before Thomson Newspapers?
Roy’s dad was a barber. His mom leased out 5 rooms to make ends meet.
He dropped out of school at 14 and Roy's family was still barely scraping by in his early 40s.
Before getting into newspapers, Roy constantly chased the hottest trends of the time and went bust three times in different industries:
- Farming at age 24
- Auto parts at age 30
- Radio sales at age 36
Roy dropped out of high school at age thirteen and attended Mr. Elliot’s Business College for a year to study bookkeeping.
Roy got his start in business with his Aunt Hislop who was wealthy from buying up second mortgages at a discount.
When Roy found out that his Aunt Hislop kept no ledgers for her business, he was distraught and urged her to let him help out. The then 14-year-old Roy loved bookkeeping:
“Eventually [he] so mastered the details of his aunt's affairs that at any moment he could tell her what she was worth, how much she was owed, and which payments had been made when by whom.”
At fifteen years old, Roy’s aunt let him co-invest in the purchase of some mortgages. He became obsessed with making money. Instead of chasing girls, he focused on reinvesting his profits.
Then he pursued several failed ventures chasing the hot new thing.
At age 24, he became a farmer. He lost most of his capital in the process (he was worth about $170,000 in today’s dollars when he purchased the farm).
Auto Parts Distribution
At age 30, he got into auto parts distribution. His first auto parts business failed because of a liquidity crunch (he sold too many auto parts to customers who were slow to pay while suppliers expected timely payments).
His second auto parts distributor worked out alright, but it was a lot of work for little reward so he moved on.
At age 36, Roy got into radio sales. He had a radio distribution franchise in Ottawa with DFC, a radio manufacturer, and Northern Ontario.
DFC decided to take back its Ottawa franchise to deal there directly so Roy was only left with Northern Ontario.
He found selling radios difficult as there was no reception so far away from big city radio stations. The depression was also not an ideal time to be selling expensive radios.
To give his potential customers something to listen to, and after distributing radios for 6 years, Roy bought his first local radio license in North Bay (1931) for $1.00. He was able to buy a radio frequency and transmitter for just $201. On March 3rd, 1931, CFCH went live in North Bay, Ontario.
He discovered that the broadcasting business was much better than the radio distribution business, and quickly bought other stations.
Why did Roy Thomson get into radio and newspapers?
When Roy was selling radios in Ontario, his customers needed more programs to listen to so he decided to launch his own radio station.
Roy’s thesis in his own words to a lender:
“Canada had developed, especially in Ontario, along the routes of her railway lines. About every twenty miles along these lines an initial distributing center had grown into a township of fifteen thousand or more people.
Each township, very early, had developed its own small, weekly newspapers.
As the town grew, so did its economy, until, in most of these towns, these weekly papers had prospered sufficiently to become dailies--one of which, in time, had usually ousted the rest.
Most of these daily papers had for decades been in the hands of the one family, passed down from father to son, and had continued in existence more out of habit than conviction; and often, because they were run on uneconomic and old-fashioned lines, they nowadays made little or no money.
Yet they were subject to succession duties each time the current publisher died, and these death duties were steadily whittling away what little incentive still existed for a family to continue the business.
Therefore, there should, throughout Canada, be a great number of old family newspapers which, sooner or later, to the advantage both of the family and himself, he could buy.
And they were properties worth buying because, in a company like his, it could be ensured that they would never be subject to death duties; and because every community in Canada was a growing one, becoming daily more prosperous; and because a single paper in such a growing, increasingly prosperous community represented an ineradicable monopoly - a cul-de-sac, as it were - into which must flow all of its advertising revenue; and because efficient, business-like publishing methods, such as he, almost alone in Canada, had perfected, must enormously increase the earnings and profits of any newspaper he acquired.”
What did Roy Thomson look for in deals?
Through his failures Roy learned what made a great business:
- Not all growth makes for a good business - Selling auto parts & radios grew quickly with consumer adoption, but they didn't make money.
- Barriers to entry - Low barriers to entry make it hard to make profits. Moats matter.
- Sticky customers
- High margins
- Lowering costs using technology
- Local monopolies
- Enduring advantages
Thomson was never afraid of losing money on his deals. He always viewed them as “heads I win, tails I don’t lose much”.
"I don't take chances in deals. You think I do, but I don't. I know my deals are O.K. Right now, I've got sixteen deals on. And sixteen more in my head. But I don't fear for any of them, because I'm not taking risks."
- Roy Thomson
“You'd have to be crazy not to make money on this deal," he explained back in Toronto. "The real estate and buildings alone are worth a million pounds -which was a quarter of a million more than he had laid out.”
- Roy Thomson
How did Roy get up to speed in the new industry?
Back then it was a lot harder to conduct competitive due diligence.
Roy had no background in newspapers but consistently ran them more efficiently than the previous owners.
How Roy learned the ideal layout proportions:
“He drew a hundred dimes from the bank, looked up the names of a hundred cities in America that were approximately the same size as Timmins (whose population then was about fifteen thousand), and sent a dime to a newspaper office in each such town asking the publisher to mail him back a copy of his journal.
Then, on the floors of his lodging rooms in Timmins, of the Spruce Street "office" and of his North Bay home, he went about the systematic task of measuring, analyzing, and charting--most particularly charting--all his conclusions about the make-up and earning power of small rural newspapers.
From that moment onwards, his research completed, Thomson the publisher knew exactly the proportions he wanted in his newspaper of classified and display advertising, of editorial comment and news and illustration.”
How did Thomson Newspapers source and find businesses to buy?
Since papers were viewed as family heirlooms (run for political clout rather than profits), buying up newspapers in the ‘40s and ‘50s wasn’t that easy.
Often publishing families were offended at the mere question of whether their paper was available for sale.
Roy was a tireless networker. He worked his way up the ranks of the two industry associations, the Canadian Press (CP) and the Canadian Newspaper Publishers Association. He eventually became president of the Albany club.
He was constantly meeting people and joining this board or that board. It became his habit to ask any publisher he met whether his newspaper was up for sale.
Anyone even remotely considering the possibility of selling his newspaper knew that Roy was ready to buy.
“On the last afternoon of a CP conference, a publisher stood up and lamented, ‘Circulation is down… TV is killing us... Radio newscasts steal our stories… labor demands are endless… costs are rising… advertising revenue is falling…’ All of this for some ten minutes before, amid a profound gloom, he fell back onto his seat.
At once Thomson, the dignified, hard-working, far-sighted, and impartial president, was on his feet, eyes shining behind his bottle-bottom glasses, a sweet smile of sympathy on his lips. ‘Want to sell?’ he asked.”
As acquisitions got harder over time, Roy became stealthier:
“As he bought more papers, Thomson developed a technique that kept newspaper owners from being tipped off about his interest in acquiring their paper.
Much of the scouting was delegated to Thomas Wilson, who was given the sort of instructions an undercover agent might receive.
‘I was told to go by train rather than by car because my license plates might give me away. I was also told at which hotel to stay, and to meet the publisher someplace other than the hotel so his employees would not know about the negotiations.”
How did Roy decide on which newspapers to buy?
Numbers Driven - Roy had formulas for how much he was prepared to pay for a newspaper that came up for sale and how much he thought he could improve it post-acquisition. He made the decision entirely based on the numbers. Not bothering to visit and inspect the property before making a decision.
Criteria - Roy openly talked about what was required for him to buy a newspaper:
- It had to be the only newspaper (preferably a daily, although a weekly would do) in a town with a population of at least fifteen thousand people
- At least one store had to be prepared to run a daily advertisement for which it would pay at least one hundred dollars.
Price discipline - the above factors, plus a price reasonably related to cash flow, would get him to buy.
Outside of radio and newspapers, Roy also bought a range of businesses including several ladies' hairstyling businesses, a fitted kitchen manufacturer, and an ice cream cone manufacturing operation.
How did Roy Thomson operate?
Roy’s typical deals were simple and made without preamble or haggling. He did not regard a written contract as necessary or even more binding than an oral agreement.
“Roy had shown that obstacles did not halt him. Like water, he merely swirled around whatever blocked him and surged ahead on a new course--almost always to his ultimate advantage.” - Russell Braddon on Roy Thomson
Thomson was regarded as "the kind of guy who just owes a bit, and borrows a bit, and pays a bit--and meantime don't worry about nothin' "
“He had no license to do so, no technical knowledge of how to do so, no equipment and no capital with which to do so, but this was his plan; and whilst those in whom he confided (which was everyone who would listen to him) mocked, he himself became absorbed in the exercise of figuring out how to put his plan into effect.” - Russell Braddon on Roy Thomson
“Roy bought Bartleman's newspaper because he believed implicitly that advertising space was a commodity the public would always buy; that they bought more of it from newspapers than from anywhere else; and that he, who could sell anything, would most certainly sell them a great deal of advertising space in his newspaper.” - Russell Braddon on Roy Thomson
The confidence he’ll find the money as needed:
“Working literally day by day, either they paid their accounts for that day, or they sent notes redeemable in thirty, accompanied by nice letters, or in sixty days, accompanied by very nice letters.
And lest it be thought that this was merely a temporary crisis, that system persisted unrelieved for the next three years, during which Thomson walked a deliberate tightrope across the abyss of bankruptcy, his eye set unwaveringly on expansion, his balancing pole Chapman's skill with books.
"I don't care how it works," he would pronounce of some purchase which he had figured was feasible, but this is what we're gonna do and Sid will put it through the books!" - Russell Braddon on Roy Thomson
“When Thomson was medically examined for the purpose of buying himself some insurance and told brutally that his excessive avoirdupois would not only diminish his life expectancy but increase his premiums as well.
Either threat on its own he might have endured, but together they represented so intolerable an affront that he went at once to his doctor and demanded the diet most compatible with longevity and economical insurance. His doctor advised him to shed forty pounds.
He began his diet that day_-and within the week was in Toronto ordering a new one-hundred-dollar suit for a body forty pounds lighter than his own. The tailor protested: Thomson said simply, "You make the suit, I'll make the weight."
In this operation, he was not greatly assisted by his friend Cooke, who took him to baseball matches each week, along with All Canada's manager, Guy Herbert, and there, under his very nose, ate peanuts and hot dogs (which Thomson loved), with lots of ketchup (which Thomson habitually poured over everything), and told him how beautiful they were (which Thomson knew). But Thomson was not to be tempted from his crash diet, and, exactly to schedule, acquired his new figure and collected his new suit.” - Russell Braddon on Roy Thomson
Convincing an owner to sell to him with 100% seller financing:
“Bartleman thereupon named six thousand dollars as his selling price; and Thomson agreed the price so long as Bartleman could first achieve a position where he could legally sell. At which moment, Stodgell, surrendering unexpectedly, obliged by allowing his profit-sharing agreement to be terminated. Thomson then met Bartleman and his partner Ryan, at their lawyer's office, to draw up a contract for the purchase of the Press.
"Where's your money?" the lawyer asked briskly.
"I haven't got cash," Thomson replied equally. briskly.
Tell you what I'll do, though. I'll give you two hundred dollars down, and twenty-eight promissory notes of two hundred dollars each, repayable over twenty-eight months."
"That's a hell of a deal," Bartleman protested.
"Lookit," Thomson pointed out, "I'm going to make a good newspaper out of the Press. Now if I go broke, you get the paper back; and if I don't, you get your money. Either way, you can't lose."
Finally, Bartleman and Max Ryan agreed; promptly Thomson gave them their first two hundred dollars and their twenty-eight promissory notes, and so he became a publisher.”
- Russell Braddon on Roy Thomson
Roy hated the idea of anyone but himself owning stock in his company and bought it back whenever he could. By late 1939, practically all the stock was back in his own hands.
Roy was famously thrifty. Even long after he was rich by any measure. While employees and partners would buy fancy clothes and items, Roy always dressed in rumpled old suits and delighted more in showing friends his balance sheets.
“He had not saved money and he was not even now beginning to save money. He did not even approve of saving money, which he regarded as a commodity to be used, stretched, augmented and multiplied--but not to be locked up.
A dollar, to Thomson, was merely the security he could offer for another dollar. With the two dollars, he would buy. With what he had bought, he would raise more credit. And buy more. And put it in pawn to more credit. Endlessly.
Not his family, of whom he was fondly proud, nor God, in whom he could not at any time quite disbelieve, nor his own future, in which he believed passionately, would ever mean more to him than the cold, clear belief that money must always be risked to make more money.”
- Russell Braddon on Roy Thomson
After backing a baseball team, he was upset they wouldn’t grab foul balls:
“He used to watch in anguish as balls hit out of the ground were promptly replaced, each at the cost of one dollar twenty cents.
"Geez," he would invariably mutter, "isn't anybody going to look for that ball?”
“Not that Thomson liked sacking people: on the contrary, he was rather bad at it and usually tried to outwit employees into staying with him rather than let them haggle themselves out of a job.
Thus one persistent applicant for a weekly raise was offered an amount for the month which he accepted as an increase until he found that Thomson, scribbling earnestly on his pad, had merely offered him per thirty days what he had been getting all along, at his old salary, for four weeks and two days.
"The way Roy put it," he reported ruefully, "it seemed real good."
Another asked for a raise because without it he could never repay the money he had borrowed and he had borrowed it from Thomson.
Again Thomson's pencil jotted incomprehensible figures all over his pad; and again a compromise offer was made.
The reporter emerged from his employer's office somewhat dazed, his debts having been canceled and his salary cut.
Christmas presents to the female staff (as the war rolled on, females became the majority of his staff) were always a cost that caused Roy pain.
He solved the problem by giving free radio time to cosmetic firms and wristwatch manufacturers in exchange for cosmetics and wristwatches that he could give as presents.
What did Thomson Newspapers do after a purchase? How do they operate?
Roy ran his operation exceptionally well.
Roy's core operational tenets
- Decentralization - Head office never interfered with editorial
- Culture of measurement and accountability
- Talented managers
- Respect for capital
- Continuous improvement
Roy’s operational playbook after an acquisition:
- Install the best equipment
- Leave the staff intact
- Turn weeklies into dailies
This brought the community more prestige, which brought more trade, which brought more classified advertisements for the converted newspaper)
- Ignore complaints
- “No newly purchased paper ever wanted, after years of muddling along, to have imposed upon it a budget for every job and every item. "We're different here," he found his latest acquisitions always pleading: to which invariably he retorted: "Everyone's different - until you've figured 'em out."
- Set strict salaries for every job that could not be exceeded.
- “If a man in such a job could get a better salary elsewhere, let him leave. He would be bettering himself, and that was a good reason for him to leave: but to offer him more than the budgeted figure as an inducement to stay would be to unbalance the entire system and that was not good business.”
Set strict budgets for everything
- From how much metal (which frequently had been stolen in days past) should be used in the printing of an average page;
- How much in dollars and cents, per page per month, might be spent on the repairing and maintenance of printing machines
- How much per a hundred pages was available for the purchase of such unlikely items as glue, tape, and string;
- How many man-hours of production per page were permissible;
- How much could justifiably be put down to felt, gummed tape, oil, and grease
- The amount per mile that reporters could claim for their own cars, in the absence of a staff car.
- Managers were instructed to make 45% pretax. Only above that level were you probably price gouging.
Strict bookkeeping in a standardized manner
- So that the expense incurred for any item could, at a glance, be compared (at the same place on the same page of the next account) with that of any other Thomson newspaper.
- If it was lower than the norm, then the norm might need adjusting; but if it was higher, then the publisher had to explain.
- Thomson could tell in seconds, by the examination in meticulous detail of like with like, exactly how each of his properties was progressing. If they spent a dollar a month more on lead or typewriter ribbons or notebooks for reporters than the budget prescribed, they must answer to him.”