Incorporated: 1997 as Liberty Group Publishing, Inc.
NAIC: 511110 Newspaper Publishers
SIC: 2711 Newspapers
GateHouse Media, Inc., is one of the largest publishers of small community newspapers in the United States, reaching an audience of ten million readers per week in 20 states. GateHouse Media owns 90 daily newspapers, 226 weekly newspapers, 113 advertising-only ("shopper") publications, and operates more than 230 locally oriented web sites. The company's properties are located in 285 markets, which the company organizes into five regions: Western, Atlantic, Southern Midwest, Northern Midwest, and Northeast. GateHouse clusters its newspapers geographically, maintaining particularly dense concentrations of publications in Illinois, Missouri, and Massachusetts. New York-based Fortress Investment Group LLC owns 60 percent of GateHouse Media.
Origins
In 1997, 35-year-old Kenneth L. Serota became one of the "young men in a hurry" referenced in the March 18, 2002, issue of Editor & Publisher. "They were the Citizen Kanes of the new millennium," the magazine noted, "entrepreneurs who quit their day jobs in the boom years of the late 1990s to create their own chains. They knew they were buying at the top of the market, but they were not deterred." Serota decided in 1997 to focus his energies on small-town newspapers, specifically on acquiring as many of the 8,000 daily and weekly publications spread throughout the country as he could. Serota intended to cluster his purchases into geographic groups, thereby cutting operating costs and creating more effective advertising platforms. It was a strategy first employed by Thomson Newspapers Inc. in the early 1990s, and one adopted in 1994 by American Publishing Co., whose parent company, Hollinger International Inc., was Serota's employer. For his first acquisition, Serota set his sights on American Publishing, forming GateHouse Media's predecessor, Liberty Group Publishing, Inc., to complete the transaction. When Serota left Hollinger International, quitting his day job to become one of the Citizen Kanes of the new era, he left with assets valued at $322 million and two years of experience in the newspaper business.
Serota was born in Skokie, Illinois, a suburban town outside Chicago that fit the profile of communities he would target as chairman and chief executive officer of Liberty Group. In the years before he launched his ambitious venture, Serota worked in the top tier of the corporate ranks, distinguishing himself at an early age. When he turned 30, Serota was appointed senior vice-president of Mama Tish's International Foods, a post he held for three years. He left Mama Tish's in 1995 to join Hollinger International, a company controlled by Canadian investor Conrad Black whose flagship asset was the Chicago Sun-Times. Hollinger International, through its subsidiary, American Publishing, clustered suburban weekly newspapers around its prized property, the Chicago Sun-Times. Serota was hired as Hollinger International's vice-president of law and finance, but his own ambition cut his stay short. "Ken was young, energetic, and aggressive," the president of American Publishing said in a July 12, 2001, interview with Chicago Business. "It was apparent he wouldn't be content just being a corporate lawyer for Hollinger." Serota's exit from Hollinger International came about when the company decided to sell 40 percent of the community newspapers it owned through American Publishing, presenting the eager executive with an opportunity he seized. Up for sale were 56 daily newspapers, 34 paid weekly newspapers, and 77 free newspapers with a combined circulation of 900,000. The properties were spread across 11 states, clustered in southern Illinois, Missouri, western New York, Pennsylvania, and California.
Serota had the drive to launch a national attack as a consolidator in the community newspaper business, but he lacked the financial resources to realize his ambitions. To secure the capital to acquire the 167 newspapers owned by Hollinger International, he brought in a deep-pocketed partner, the Los Angeles-based investment firm Leonard Green & Partners. Known primarily as a takeover specialist that acquired floundering retail chains such as PayLess Drug and Builders Square, Leonard Green backed Serota's bid to acquire the newspapers in November 1997, offering Hollinger International $310 million for newspaper properties that generated roughly $100 million in revenue and posted nearly $30 million in earnings in 1996. The transaction was completed in January 1998, putting Serota and Liberty Group in business. "These are very high margin newspapers with very strong cash flows," a Leonard Green partner said in a December 6, 1997, interview with Editor & Publisher. "We're likely to take it public within one or two years."
Liberty Group Takes Shape
Serota established Liberty Group's modest offices in a nondescript industrial park in the Chicago suburb of Northbrook. On a wall at the company's headquarters, Serota put up a map of the United States and, armed with a box of pushpins, plotted an acquisition campaign with the tactical eye of a general. The newspaper industry was highly fragmented, making it ripe for consolidation. Of the nearly 400 daily newspaper owners in the United States, 93 percent owned fewer than ten newspapers each. Only a dozen companies owned more than 25 newspapers. Furthermore, the vast majority, 85 percent, of the daily newspapers published in the country had circulations under 50,000, presenting Serota with a bevy of ideal acquisition candidates. He planned to acquire newspaper properties in clusters, fleshing out Liberty Group's presence on the map at company headquarters, and realize the economic and operational benefits of centralizing "back-office" functions such as advertising composition, bookkeeping, and production. Group purchases of insurance, newsprint, and other products and services offered other ways to maximize profits, increasing the appeal of a business that already enjoyed handsome profits. Local newspapers, often the dominant form of media in small towns, attracted loyal followings, which, in turn, attracted advertisers, enabling community publications to generate profit margins of up to 40 percent, twice that of some metropolitan dailies. Weekly publications, which by far outnumbered daily newspapers, provided Serota with another way to build his advertising platforms, giving the young chief executive officer and chairman a wealth of opportunities to expand Liberty Group's operations.
With capital provided by Leonard Green, Serota embarked on an acquisition campaign after purchasing the Hollinger International properties. He targeted publications with circulations in the 10,000 range, preferring properties located away from urban markets, and appointed regional managers to oversee the company's growing network. After the Hollinger International acquisition, Serota purchased 41 weekly and daily newspapers within the next three years, averaging more than one acquisition per month during the period. "There was a pattern to it," Serota explained in a March 18, 2002, interview with Editor & Publisher. "We added a couple to this cluster and a couple to that one, so we were adding to our groups gradually and our managers were not overwhelmed." After setting a frenetic acquisition pace, Serota stopped pushing pins into his office map altogether. By the time Liberty Group filed with the U.S. Securities and Exchange Commission for an initial public offering (IPO) of stock in June 2002, the company had not completed an acquisition for more than 20 months. "Maybe we're not as hungry as we used to be," Serota offered in his March 18, 2002, interview with Editor & Publisher.
Serota may have lost some of his eagerness, but Leonard Green had not lost its eagerness to recoup its investment. The proposed public offering was for $225 million, giving Wall Street the chance to invest in Liberty Group's clusters of newspaper properties in the Midwest, Northeast, California, and the suburban Chicago area. The company's IPO, like its expansion efforts, stalled, however. Serota waited nearly a year before he scuttled his attempt at a public debut, canceling plans for an IPO in May 2003. "Upon advice of our investment bankers," he said in a June 16, 2003, interview with Editor & Publisher, "market conditions are not optimal for a small market capitalization." Leonard Green's hopes of cashing in on its investment were dashed, but the investment firm eventually found another way to turn a profit on its holdings. The transaction marked the beginning of a new era for Liberty Group, one that would be governed by a new investment firm and a new chief executive officer.
New Investor in 2005 Sparks Expansion
In June 2005, Liberty Group was acquired by New York-based Fortress Investment Group LLC. A hedge fund and venture capital firm, Fortress Investment made its first foray into the media business with its acquisition of Liberty Group, adding to its diverse portfolio of investments that included stakes in assisted-living centers, cellular-phone towers, aircraft leasing, and large real estate projects. Fortress Investment paid Leonard Green $527 million for Liberty Group, entrusting its new purchase to Michael E. Reed, who was appointed chief executive officer in February 2006. Reed was recruited from another suburban newspaper consolidator, Alabama-based Community Newspaper Holdings, Inc., where he served as chief financial officer between 1997 and 1999 before earning promotion to the posts of president and chief executive officer. Reed, with the backing of Fortress Investment, employed the same strategy as the Serota-Leonard Green combination employed, focusing on patching together clusters of media properties in small markets.
The intervention of Fortress Investment and Reed injected Liberty Group with vitality, touching off a period of expansion that eclipsed the pace of growth during the company's first years in business. Reed took control over a company that published more than 270 dailies, weeklies, and shoppers, giving him a network that he nearly doubled in size within his first six months in control. Working from the company's new headquarters in Fairport, New York, Reed first gave Liberty Group a new corporate banner, changing the company's name to GateHouse Media, Inc., in May 2006. Next, he orchestrated two massive acquisitions within days of each other, moving headlong into suburban markets in Massachusetts. The company, which previously had no presence in New England, reached an agreement to acquire the Community Newspaper Co. subsidiary owned by Herald Media, Inc., the publisher of the Boston Herald. The acquisition, a $230 million deal, included four daily newspapers and 93 weekly newspapers with a combined circulation of 600,000. Within two weeks, another agreement was reached to acquire Enterprise NewsMedia LLC, publisher of the Patriot Ledger in Quincy and the Enterprise in Brockton, and MPG Newspapers' 23 weeklies, a $180 million deal. GateHouse Media nearly doubled in size after the two back-to-back acquisitions, presiding over 75 dailies, 231 weeklies, 117 shoppers, and 230 web sites (primarily online versions of its publications) clustered in 17 states. Before the end of the year, Reed did what his predecessor was unable to do. GateHouse Media filed an IPO in July and completed its conversion to public ownership in October, raising $248 million. After the stock offering, Fortress Investment owned 60 percent of GateHouse Media's shares.
Reed's acquisition campaign continued as GateHouse Media entered 2007, positioning the company as one of the country's largest publishers of small-town newspapers. There were indications, however, that Reed, despite professing in a February 19, 2007, interview with Business Week, "we never look at a market and say it's too small," was leaning toward publications that served larger markets. In March 2007, Copley Press Inc., publisher of the San Diego Union-Tribune, agreed to sell nine newspapers in Illinois and Ohio to Gatehouse Media. The price agreed upon was $380 million. "They've been on somewhat of a buying streak since they went public a few months ago," an industry analyst said of GateHouse Media in a March 14, 2007, interview with the San Diego Union-Tribune. "They're trying to upgrade their portfolio of holdings by moving more to midsized dailies and larger weeklies instead of smaller community newspapers." The validity of the analysts' assessment was underscored the following month when GateHouse Media agreed to pay Gannett Co., the country's largest newspaper publisher, $410 million for four daily newspapers. The acquisition included newspapers in Connecticut, Illinois, New York, and West Virginia, with circulations of 26,000, 65,000, 43,000, and 30,000, respectively, which became among the largest in the GateHouse Media chain. The company's future actions would determine if it was skewing toward larger markets, but it seemed almost certain its future actions would include further acquisitions. GateHouse Media completed its second public offering in July 2007, selling 17 million shares at $18.45 per share, giving it the financial resources to pay down its debt and press forward as one of the country's most prolific publishers.
Principal Subsidiaries
ENHE Acquisition, LLC; Enterprise NewsMedia, LLC; Enterprise NewsMedia Holding, LLC; Enterprise Publishing Company, LLC; GateHouse Media Holdco Inc.; GateHouse Media Operating, Inc.; GateHouse Media Massachusetts I, Inc.; GateHouse Media Massachusetts II, Inc.; George W. Prescott Publishing Company, LLC; GateHouse Media Arizona Holdings, Inc.; GateHouse Media Arkansas Holdings, Inc.; GateHouse Media California Holdings, Inc.; GateHouse Media Colorado Holdings, Inc.; GateHouse Media Corning Holdings, Inc.; GateHouse Media Directories Holdings, Inc,; GateHouse Media Freeport Holdings, Inc.; GateHouse Media Illinois Holdings, Inc.; GateHouse Media Iowa Holdings, Inc.; GateHouse Media Kansas Holdings, Inc.; GateHouse Media Lansing Holdings, Inc.; GateHouse Media Louisiana Holdings, Inc.; GateHouse Media Management Services, Inc.; GateHouse Media Michigan Holdings, Inc.; GateHouse Media Minnesota Holdings, Inc.; GateHouse Media Missouri Holdings, Inc.; GateHouse Media Nebraska Holdings, Inc.; GateHouse Media Nevada Holdings, Inc.; GateHouse New York Holdings, Inc.; GateHouse Media North Dakota Holdings, Inc.; GateHouse Media Pennsylvania Holdings, Inc.; GateHouse Media Suburban Newspapers, Inc.; Liberty SMC, LLC; LRT Four Hundred LLC; Mineral Daily News Tribune, Inc.; News Leader, Inc.; Terry Newspapers, Inc.; SureWest Directories.
Principal Competitors
Lee Enterprises, Incorporated; The McClatchy Company; Community Newspaper Holdings, Inc.
Further Reading
Bailey, Steve, "Herald's Owner to Sell Suburban Papers," Boston Globe, May 6, 2006.
Calbreath, Dean, "Nine Copley Papers in Ohio, Illinois Sold for $380 Million," San Diego Union-Tribune, March 14, 2007.
Fitzgerald, Mark, "Liberty's IPO Idea Scrapped," Editor & Publisher, June 16, 2003, p. 8.
------, "The New Chain Gang," Editor & Publisher, March 18, 2002, p. 10.
------, "A $225-Million IPO in the Offing," Editor & Publisher, June 10, 2002, p. 6.
"GateHouse Media Prices Second Public Offering Shares at $18.45," Editor & Publisher, July 18, 2007.
Gavin, Robert, "GateHouse Buys More Mass. Papers," Boston Globe, December 2, 2006.
Jones, Tim, "Newspaper-Consolidating Firms Acquire All the News That's Fit to Buy," Knight-Ridder/Tribune Business News, September 30, 1999.
"Liberty Could Be Publishing's IPO Guinea Pig," IPO Reporter, June 10, 2002.
Lowry, Tom, "Hot News in Nowheresville," Business Week, February 19, 2007, p. 74.
Neuwirth, Robert, "Instant Newspaper Chain," Editor & Publisher, December 6, 1997, p. 10.
Richardson, Patricia, "Kenneth L. Serota," Chicago Business, July 12, 2001.
Rowland, Christopher, "Despite Debt, Chain Seeks More Papers," Boston Globe, August 1, 2006.
— Jeffrey L. Covell
