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GateHouse Media Is On The Hunt For Acquisitions

Meet the new GateHouse. Same as the old GateHouse?

Let's hope not.

GateHouse Media returned to the public markets last week for a second chance. The previous incarnation of Massachusetts' largest community newspaper publisher crash-landed onto the unhappy island of penny stocks after a brief flight following its October 2006 IPO. The reason? An ill-fated shopping spree in which the Fairport, N.Y.-based firm gobbled up local media properties at steep prices before the bottom fell out of the newspaper market, leaving GateHouse with a mountain of debt and no room to refinance.

So private equity backer Fortress Investment Group heaved GateHouse into bankruptcy court last September to shake off roughly $1 billion in debt. But the acquisitions resumed: Fortress used one of its real estate investment trusts to buy the Dow Jones local media group, a chain that includes the Cape Cod Times and Standard-Times of New Bedford for $82 million, and joined that group with GateHouse in a new venture.

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That venture, known as New Media Investment Group Inc., was set free into the public market via a spinoff on Friday, trading on the New York Stock Exchange under the symbol "NEWM."

CEO Mike Reed offered an upbeat outlook for New Media's roughly 5,000 or so employees in a memo on Friday. Reed will now be CEO of the new parent company, while Massachusetts media executive Kirk Davis has been promoted from president to CEO of GateHouse and will also oversee the former Dow Jones papers. But other than that personnel announcement, the memo didn't offer much in the way of insight into Reed's plans.

For some real details about Reed's strategy, we'll have to go to New Media's S-1 form, the massive document that companies file with the Securities and Exchange Commission before selling shares to the public. In New Media's case, the S-1 doesn't offer answers to all of my questions. But it does shed some light on New Media's threefold mission for its shareholders: to grow organically through digital revenue, to buy up more community media properties, and to issue a quarterly dividend.

Acquisitions are seen as central to New Media's mission: Reed and his team want to grab a piece of the market for community newspaper and directory acquisitions, an overall market they value at $35 billion in the U.S. The market is still highly fragmented, they point out, with numerous family-owned operations still operating. And unlike in 2006, when GateHouse started buying up papers the last time, there are many bargains to be had out there if you believe newspapers have any sort of profitable future. GateHouse only needs to look at its printing partner, The Boston Globe. John Henry bought New England's largest daily, with the Telegram & Gazette thrown in for good measure, for $70 million last year at less than half of what GateHouse reportedly paid for the considerably smaller Patriot Ledger and Enterprise papers back in 2006.

So who are the next targets for Reed and Davis? In December, I proposed a few possible acquisition candidates for GateHouse in Massachusetts after the company emerged from bankruptcy. The Telegram & Gazette is on the market, although it's not clear whether John Henry would be willing to sell the T&G to the GateHouse team. The price would likely be in the $5 million to $10 million range -- something that a newly constituted New Media should be able to afford. Other daily papers that would be a good fit for GateHouse in Massachusetts include the Sun Chronicle in Attleboro and daily newspapers on the North Shore. (GateHouse already dominates the markets in the suburbs south and west of Boston, with the dailies in Quincy, Framingham, Brockton, Taunton and Fall River.) GateHouse can access a revolving loan to make some deals. The company also expects to plow a portion of its projected cash flow of $50 million to $70 million this year into acquisitions.

The company also wants to expand its yellow page business, which until now has been concentrated in California directories. And GateHouse executives see the potential to eventually branch into broadcast TV, billboards and radio as well.

GateHouse's digital marketing arm, Propel Marketing, is viewed internally as a major driver for revenue growth, as the company looks to capitalize on its 1,000-person-strong sales force with well-established connections with local advertisers. Propel brought in $4.3 million in revenue during the first nine months of 2013, or 12.5 percent of the firm's digital revenue. GateHouse execs see a largely untapped market with so many small businesses lacking something as simple as a Web site at and the vast majority of them lacking mobile-friendly sites.

The big question looming over all of this: Can GateHouse's leaders grow digital revenue at a rate fast enough to outpace the inevitable declines in ad revenue on the print side, and still have money left over for dividends and acquisitions?

Well, the NEWM stock didn't drop in price on its first day of trading. So there are at least some investors out there betting that GateHouse's management will be able to answer that question successfully this time around.

Read the whole story at Boston Business Journal »

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