How much time does Postmedia have left?

It's been just over two years since Postmedia, Canada's largest newspaper company, paid $316 million for 175 newspapers and websites belonging to Sun Media, Canada's second-largest newspaper company.

The deal was hailed at the time as a necessary act of consolidation in the struggling print sector. It was believed to allow Postmedia improved operating efficiencies, more leverage with advertisers, and more runway in which to execute its digital strategy and find its way back to growth.

It was also a controversial transaction, not least because it put all but a handful of the country's newspapers under the control of one ownership group (a group that promptly abandoned its promise to the competition authorities to continue to maintain separate newsrooms in cities where it owned competing papers).

Anyway, two years on, how does the deal look, and what is the prognosis for Postmedia?

Back in the fall of 2014 when the Sun Media acquisition was announced, Postmedia's revenues were about $650 million a year and its ebitda was $96 million. It had $486 million in debt, and a debt-to-ebitda ratio of five. That's not a pretty picture but better than the debt-to-ebitda ratio of 11 the company had in 2011.

Once the Sun Media papers were absorbed, by May 2016, Postmedia's revenue crept up to just over $900 million. Its bottom line, however, never improved. Rather, ebitda was by then down to $80 million annualized. The company's debt, now including part of the cost of the Sun Media purchase, was up to $650 million, and its debt-to-ebitda ratio was at eight.

This month's Postmedia results show revenue at $788 million, meaning that half of the revenue gains of the Sun Media acquisition have evaporated in a year. Postmedia's ebitda is down to $38 million annualized, or about 40% of what it was before the purchase. The company's debt is just under $350 million which looks like progress but, thanks to deteriorating earnings, the debt-to-ebitda ratio is now nine and closing fast on the old high of 11.

Annualized earnings of $38 million on revenues of $788 million leaves a margin of less than 5%, down from 15% at the time of the Sun Media purchase. If current trends hold, Postmedia will be under water by spring.

That doesn't mean the company will close its doors next spring. Expect increasingly savage moves by management over the next 12 months. More cuts to the product, the payroll, days of publication, etc. Expect individual publications to be sold, given away to avoid the cost of a windup, or shut down. Expect what's left of the Postmedia real estate portfolio to be liquidated. Expect louder calls for a bailout from Ottawa (something that would postpone rather than prevent the inevitable).

People who work at Postmedia will wonder how there could possibly be more to cut from the company's operations after all they've given up in recent years but there is always more to cut. Cost-paring will be the last activity to cease at Postmedia. The company's owners have every incentive to keep it running no matter how painful the ordeal, or how pathetic the product.

Ugly as it has been to date, we have only seen the overture at Postmedia. The next twenty-four months will be a horror show. Nevertheless, I expect there will be still be something left of the former empire by 2020 -- enough, at least, to fund a retirement package for its CEO.