GateHouse Media Inc. last week agreed to purchase around 100 community newspapers from Herald Media Inc., but will not acquire the Boston Herald itself. The deal is considered acceptable to both sides, but also underscores growing investor preference for community print media instead of big-city dailies.
“They only were willing to sell the entire company in a package deal at the beginning,” said a buyout professional who declined to be named. “Once [Herald publisher] Pat Purcell agreed to carve out the community papers, it became GateHouse’s deal to lose.”
Purcell has run the Boston Herald for decades, but in 2001 made the gutsy decision to acquire a group of troubled community newspapers from Fidelity Investments. The deal was valued at around $150 million, and was partially financed via a $60 million investment from Audax Group, BMO Halyard Partners and Weston Presidio. When the investors signaled their interest for liquidity late last year, Purcell retained Wachovia Securities to begin soliciting bids for Herald Media as a whole.
Private equity firms Providence Equity Partners and Thomas H. Lee Partners expressed initial interest, but other Boston-area media investors like ABRY Partners, Alta Communications and Spectrum Equity Investors passed almost immediately.
Many prospective buyers griped about the Boston Herald’s balance sheet, although sources differ on its financial health. Purcell insists that it was profitable in 2005, while The Boston Globe reported a $2 million loss (compared to a $20 million profit for the community papers). A knowledgeable private equity investor, however, says that it’s open to interpretation and manipulation: “The Herald could be considered profitable or unprofitable… depending on how shared revenue and shared expenses get counted,” he explained.
As the auction stumbled into spring, Purcell recognized that he needed to offer up the carveout option. GateHouse (f.k.a. Liberty Group Publishing) jumped in immediately, and finished off the deal with uncommon speed. Not only did it agree to acquire all of Herald Media’s community papers, but it also bought a different community newspaper platform – Enterprise NewsMedia Holding LLC – from Heritage Partners.
No financial terms were disclosed for either deal, although The Boston Globe reported a total transaction value of approximately $225 million. It is expected to close in June.
GateHouse is a private equity-controlled company, having been bought by Fortress Investment Group last year from Leonard Green & Partners. – D.P.