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Gannett Buys Rovion

Zacks Equity Research

Recently, Gannett Inc. (GCI) – a leading media and marketing solutions company – stated that it has bought Rovion, an advertising company, which was a part of Local Corporation (LOCM). Per the deal, Gannett acquired Rovion along with its other related assets. The financial terms of the acquisition were not disclosed.

Boston-based Rovion will form a part of the Gannett Digital organization under PointRoll and will help all Gannett segments to gain the advantage of its capabilities. Rovion is famous for its principal product ‘Ad Composer,’ which facilitates a self-service platform for creating rich media and mobile HTML5 ads. Another major benefit of Ad Composer is that it does not require any encrypting expertise.

Off late, advertising and print media companies are mainly looking for mobile rich media advertisement solutions and self-service advertisement creation tools with a view to diversify their portfolio. As a result, we believe Gannett’s acquisition is the ideal deal for the company, which will enhance its mobile and self-service capabilities.

The deal demonstrates Gannett’s strong cash position, evident by $237.4 million of cash at the end of the third quarter. Further, the company generated free cash flow of $161.8 million at the end of the quarter.

Recently, Gannett announced better-than-expected third quarter results with quarterly earnings of 56 cents a share, which surpassed the Zacks Consensus Estimate by a couple of cents, and expanded 27.3% from last year's 44 cents, reflecting a surge in television advertising attributed to Olympics and political spending, and subscription based model.

Gannett remains committed to streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio. However, we remain apprehensive about risks that the company faces due to its high dependence on advertising revenues.

Currently, we prefer to remain on the sidelines and maintain our long-term Neutral recommendation on the stock. However, the company holds a Zacks #1 Rank that translates into a short-term Strong Buy rating, and well defines the company’s effort to navigate through challenging times.

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