Anxious journalists from San Jose to Saint Paul, New Haven to Novato await the final shouts of the Digital First Media auction.

Bidding is still in progress, as DFM’s regional business heads coast to coast make presentations to would-be buyers, anonymous to them, by conference call. They share deeper and deeper financials, as those bidders fine-tune how much to offer.

Many readers are likely unaware of the impending sale of more than 100 properties (75 daily and many non-daily); their expectations of the local daily are no doubt lower after half a decade of cuts, diminishing staffs and paper size, community presence and civic impact.

DFM CEO John Paton’s high profile experiment in “digital-first” transformation is seeing its end days. The final bids for DFM papers will be called for very soon, and the transfer of ownership then likely will happen before mid-year. It will be the single largest newspaper transaction we’ve seen.

Four months into the formal sales process (“The newsonomics of auctioning off Digital First’s newspapers”), the auction mirrors the anxiety in an industry convulsed by high-single-digit losses in print advertising now into their fifth year. The sale poses questions that no longer seem new, but haven’t yet gotten old: What is a newspaper property worth, and who, in what frame of mind, would buy one?

The immediate answers may be surprising. DFM, and its broker UBS, now entertain increasingly firm “expressions of interest” from from two or three would-be bidders for the entire company.

Selling the whole motley lot — the largely western metros (San Jose Mercury News, Contra Costa Times, L.A. Daily News, Long Beach Press-Telegram, Denver Post, Salt Lake Tribune), the large set of northeastern and midwestern community dailies (including the New Haven Register, The Saratogian, The Oakland (Mich.) Press), the St. Paul Pioneer Press, and papers in Texas and New Mexico — would seem to be a tough proposition. Digital First Media pieced together the unlikely collection of titles, not by strategy, but by happenstance. Like all regional newspaper companies in the country, even this big galoot of a firm is substantially sub-national scale. Big and small, geographically disparate, sometimes at cultural loggerheads, DFM is a company owing more to the imagination of a Dr. Seuss than a financial engineer.

Paton engineered a staged, slow-moving, post-Great Recession merger between the post-bankruptcy small-paper Journal Register Co. and the post-bankruptcy larger-paper MediaNews Group. He declared war on legacy print-centric costs, sang the praises of digital first, and succeeded, unevenly, in changing the company’s products and cultures. Then, about a year ago, he ran out of time. Controlling private equity owner Alden Global Capital didn’t run out of money, but it ran out of patience, and the process of readying the company properties for sale began.

Those potential whole company buyers must answer this question: How can they make more of financial success of DFM than have Paton and Alden, especially as revenues continue to run negative and so much expense cutting has already been done? There is another way that private equity investors like to ask that question: What’s your theory going forward? That’s another way of saying: What’s behind your belief that your own strategy can work where others’ haven’t?

Among those potential whole company buyers are private equity companies, whose time horizon on the investment is four to seven years. Though private equity (think Blackstone, Platinum Equity, Providence Equity Partners, Angelo, Gordon & Co., Alden) have collectively seen a less-than-stellar newspaper-investing performance, new horses still focus on the golden ring.

A private equity firm could win an auction independently, or in association with a newspaper operator. New Media Investment Group (née GateHouse), funded by Fortress Investment Group, has already expanded significantly after taking the GateHouse properties through their own bankruptcy in 2013. Last year, it made a surprise buy of The Providence Journal and then swallowed 36-property Halifax Media in November.

Just yesterday, the company announced a $151 million public offering, in part for “investment purposes.” New Media CEO Mike Reed, who is respected by those in the trade for his operating acumen, already runs the largest number of dailies in the country, with this kind of overall presence: 370 markets across 27 states. With his Propel marketing-services-led theory, it’s logical to believe New Media still has an appetite for more.

Gannett and Tribune would seem to be two other logical partners for private equity cash that could make a big, singular deal work. We know that Tribune wants in on the DFM deal; the question is whether it would want to take on the whole DFM beast, as seems possible, or just wants to grab its L.A. properties.

The regional bidders

Long before he became Los Angeles Times publisher in August, Austin Beutner saw the business logic of adding the DFM properties around his still-dominant daily. Further, his boss, new Tribune CEO Jack Griffin’s new clustering theory is already being well executed. After assuming leadership of the spun-off company in March last year, he bought in short order both the Chicago Sun-Times suburban properties to add around the Chicago Tribune and Annapolis and suburban Baltimore properties around the Sun.

Tribune is only one of several known would-be regional buyers of DFM properties. Clarity magnate Phil Anschutz’s desire of The Denver Post is clearest, even as his company threatens (good Denver Business Journal exclusive) to revive the Rocky Mountain News — in print! — if it doesn’t get the Post.

In the Bay Area, we find a number of would-be buyers of smaller papers from Marin to Monterey and Santa Cruz. Geoffrey Dunn confirms that he has formed an acquisition group focused on the Santa Cruz Sentinel, the Monterey Herald, and other Northern California papers. Dunn unsuccessfully bid to buy his hometown Sentinel (he’s a 4th-generation Santa Cruzan) when Dow Jones’ Ottaway community news group sold it in 2006.

Those are the ones we know about, with others sure to come out of the woodwork if smaller titles get loose from a bigger deal. Of course, that will be the next, big question if we see a single buyer: Will they keep all the properties and operate them, or immediately sell off some — as McClatchy did, shocking Knight Ridder CEO Tony Ridder, after buying all of KR in 2006?

Then there’s the unlikely rumor of the day: Hearst.

With a name that defined a more halcyon era of American newspapering, the rich, smart, media-diversified, and very private Hearst company has indicated little interest in adding more newspapers to its collection, which includes the Houston Chronicle, San Antonio Express-News, and about a dozen others.

Still its long-suffering San Francisco Chronicle — which it bought for $660 million in 1999 — sits in the middle of what is now the country’s most affluent and economically dynamic region. If consolidation is a big part of what’s next for maturing newsprint-based companies, then Hearst’s Chronicle serves as either an incredible asset or an unmovable obstacle. (The Chronicle just took a new step in finding its future, appointing its first female editor in its 150-year history, 37-year-old Audrey Cooper.)

On paper, the solution is clear: Roll up the the DFM papers to the north, east, and south of San Francisco with the Chron — and mine the riches of greater Silicon Valley with digital savvy products. To put that fun-to-test theory into place, Hearst would need to be either a seller or a buyer. It’s shown no public inclination to become either. Yet the words “Hearst” are on the lips of many in the Mercury News newsroom, wishing for a deep-pocketed owner with a news-respecting tradition, and word that Hearst has at least kicked DFM’s tires is tiring out the rumor mill. Despite the innate geographic logic of a Bay Area deal coming together, consider this a very long shot — but one worth a flyer if you like a 100-to-1 bet.

DFM would ideally like to sell all the papers in a single sale. That’s cheaper, faster, and easier. We know, though, that DFM hasn’t foreclosed the possibility of multiple sales. For the company, that question is simply a financial one: How does it best maximize its exit? The company even likes to keep the possibility of it going IPO on the table, as a signal to bidders not to go too low with their numbers.

The last weeks’ rounds of bidder calls with DFM regional execs points to the biggest conundrum for buyers. With print ads still in free fall, what’s likely to be the revenue for DFM properties this year? And are sensible projections of 2016 to 2018 more than a game of sophisticated guesswork? Then there’s the piling through the arcana of DFM accountings to sort out realities and various gildings of lilies.

DFM has asked for ballpark pricing from bidders so far, to determine the finalists. Soon, it will ask for the final offers, then pick one and try to negotiate to completion.

The price

What will the price look like?

I reported last year (“The newsonomics of Digital First Media’s coming sale”) that the company produced about $120-$125 million in earnings. That’s at a roughly 10 or 11 percent margin rate, with many of the smaller papers throwing off in excess of 20 percent; the metros’ performance is sub-par. DFM would love to get a 5× multiple, or more than $600 million for the whole company, however it gets sold. A multiple of 4 is more likely, given the last year’s sales. Continued ad decline, and the sense that DFM’s half decade of cuts haven’t left a lot more that a new owner (even a smart cost-cutting-by-second-nature private equity company) can cut, will lower bids. They could come in as low as 3.5. On the other end, it’s of course the bidding, the competition, that could lead someone to go 4.5 or higher.

Buyers now know what’s in and what’s out of the deal. Real estate — often a prime plum to buyers — is out. Much has been sold, and the rest will be separately taken to market. Digital First Ventures is out as well. What’s in? The pension obligations. Add those three decisions together, and it all makes it tougher for buyers to justify bids on the high end of DFM’s hopes. The dream of a bottom-feeding deal must be tempered by the fear of getting stuck in the muck.

Throughout the process, DFM president Steve Rossi maintains his expanded role of the enforcer. Continuing ad losses mean publishers have been told to make new layoffs, as recently as this month, to maintain profit margin. Every dollar of proven profit, of course, may get multiplied by three to five in the sale.

So, what are the buyers’ theories that may lead to the corporate altar? It’s a familiar list:

• Greater efficiency, in workflows, centralized services, and use of all the technologies changing the nature of news production and distribution.
• Revenue strategies that focus beyond the core ad and subscription business, on marketing services, content marketing, events, and more. DFM’s marketing services AdTaxi business is one that would-be buyers assess for its potential growth.
• Advance-like strategies that could cut days of frequency.

Only if a buyer could execute to a high degree on any of these theories — higher than newspaper companies have yet achieved — could the strategy be borne out. That’s a big if — but it may encouraging that there are those who want to try. It will only be encouraging, though, if the actual news products — groundbreaking digital ones, in addition to still-smart print ones — improve. That’s not just an erstwhile journalist’s hope. It’s a business proposition increasingly proven out in this era. We should not expect Jeff Bezos-like or John Henry-like major reinvestment in content — but a three-year continuance (or even deepening) of the current DFM scheme to cut consumer product to maintain the profit number becomes less and less sustainable.