Hicks Muse Successor Struggles With Media Deals; Brodsky Gone

HM Capital, the more than 20-year-old buyout shop whose storied history comprises one of the more humbling falls from grace in private equity history, is struggling with a pair of newspaper investments and has abandoned media as a target sector.

One result: The firm has parted ways with Peter Brodsky, a partner who helped lead the newspaper deals, among other media investments. In addition, the firm’s latest pool, the $785 million HM 2006 Sector Performance Fund LP, is so far posting lackluster results.

As of March 31, the fund was generating an investment multiple of .66x and an internal rate of return of -17.2 percent as of March 31, according to backer Teachers’ Retirement System of the City of New York. In a statement provided to Buyouts, HM Capital said those numbers don’t reflect the unrealized value of the fund’s investments in the food and energy sectors and blamed the fund’s poor start on the investments in media.

“Media investments in 2007-2008 resulted in this depressed valuation and, as such, the firm will no longer invest in this troubled area,” the firm said in the statement, adding that it “fully expects the Sector Performance Fund to be profitable and the firm looks forward to a successful future exclusively focused on food and consumer products.”

HM Capital changed its name from Hicks, Muse, Tate & Furst in early 2006, reflecting the departure of several key executives over the previous years, including Tom Hicks and Charles Tate, along with the promotion of three new partners. The name-change also helped the firm leave behind a recent past that saw it get crushed by poorly timed investments in technology and telecom.

In the wake of an advertising downturn, Richard Connor on Oct. 28 announced he would resign as of year-end as editor and publisher of The Times Leader, a newspaper in Wilkes-Barre, Pa. that is part of The Wilkes-Barre Publishing Co., the owner of a group of newspapers HM Capital and Connor partnered to buy in 2006 for $65 million.

Connor is also resigning as CEO of MaineToday Media, a newspaper chain HM Capital formed in 2009 through the acquisition of several assets, including the Portland Press Herald/Maine Sunday Telegram, the Kennebec Journal , the Waterville Sentinel and the Coastal Journal, among others. The Wilkes-Barre Publishing Co. and MaineToday Media are separate investments, although they shared resources.

A North Carolina paper company, McGrann Paper Corp. of Charlotte, has sued MaineToday for payment of more than $124,000 for more than 300,000 pounds of specialty paper used in printing advertisements, Bloomberg Businessweek reported Nov. 3. MaineToday is trying to restructure its debt, that report said.

Connor’s announcement followed recent layoffs at both companies. Last month, Connor announced that 38 workers at the Portland Press Herald/Maine Sunday Telegram faced layoffs and that another 23 took voluntary buyouts, according to The Scranton Times Tribune. The Times Leader also laid off several employees recently, the report said.

Peter Brodsky, a partner who led several media investments and who is still board chairman of MaineToday, is no longer with HM Capital. Mark Semer, a spokesmen for the firm who provided the above statement, did not respond to subsequent requests for information on Brodsky. A receptionist declined to say since when Brodsky was no longer with HM Capital. Brodsky could not be reached for comment.

Brodsky also helped lead deals in phone directories for HM Capital. One of them, Ziplocal, also known as Phone Directories Co., was facing two lawsuits alleging circulation fraud, according to an August 30 report in the New York Post. A phone distributor warned Brodsky in May 2010 that Ziplocal was fraudulently telling advertisers it would print more phone books than it actually did, according to the report. Brodsky told Ziplocal about the charge and the company said it would look into it, the Post said.

According to Teachers’ Retirement System of the City of New York, HM Capital has taken a complete write-off on the Ziplocal investment.

“I wouldn’t say [directories businesses] are an active target at the moment,” Brodsky told Buyouts in April 2010, after the firm exited Canpages Inc., another print and online directories publisher. “It’s an industry that faces its fair share of challenges.”