GateHouse Media Inc. last week agreed to purchase about 100 community newspapers from Herald Media Inc., but will not acquire the Boston Herald in the transaction.
No financial terms were disclosed, although The Boston Globe reported a total transaction value of about $225 million.
The deal 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,” says 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, who has run the Herald for decades, acquired a group of troubled community newspapers in 2001 from Fidelity Investments. The deal was valued at about $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 in 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, such as ABRY Partners, Alta Communications and Spectrum Equity Investors, passed on the deal.
Many prospective buyers griped about the 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 (and 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 went 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.
GateHouse is a private equity-controlled company, having been bought by Fortress Investment Group last year from Leonard Green & Partners.