The Four Points group includes seven stations in four markets, including the CBS affiliates in Salt Lake City and Austin, Texas. The seller is Cerberus, a private equity firm. Sinclair will operate the stations under an LMA prior to closing.
Sinclair announced today that its buying Four Points Media’s seven stations for $200 million, which translates into a pro-forma multiple of 6.5 times blended 2010-11 cash flow.
Sinclair anticipates that it will receive U.S. Justice Department approval for the acquisition by the end of the month and hopes to take over management of the stations from current manager, Nexstar, by Oct. 1.
Sinclair has already paid $20 million to lock in the deal and will tap a term loan, a revolver or cash on hand to pay the remaining $180 million. The company expects the deal to close in the first quarter of 2012, depending on FCC approval.
A number of companies, including McGraw-Hill and Freedom, have put up for-sale signs in the past year, but the Four Points transaction, which had not been announced, is the only one to have been consummated thus far. “We believe it’s the largest transaction in three years,” said David Amy Sinclear EVP-CFO.
Does the Sinclair-Four Points deal mean that 6.5 times is the new bar height for broadcast M&A? Depends on whether you’re asking the buyer or the seller as Amy was careful to spell during today’s conference call on the sale.
He declined to offer specifics on what the seller multiple was, but noted that 6.5 times was “nowhere near what the seller was looking at. We’re just going to discuss operating synergies and what we bring to table,” Amy said. “We think the 6.5 multiple really speaks for itself. We’re not going to go back and get into the performance Four Points was enjoying.”
The 6.5 pro-forma multiple Amy noted is what the $200 million price would factor out to if the stations had been part of Sinclair’s group for the last two years.
Sinclair is buying the group, which includes five full-power and two low-power stations, from Cerberus Capital Management. Cerberus acquired the stations from CBS in 2008, paying $185 million. Veteran broadcaster Dick Reingold advised Cerberus on the acquisition and ran the group for several months before Cerberus contracted with Nexstar in early 2009 to take over management of the group.
At the time of that deal — the recent pinnacle of broadcast M&A — multiples ranged from 11 to 14 times cash flow for sellers. Sources familiar with current broadcast M&A speculate that McGraw-Hill’s asking price for its four stations represents about a 10X multiple of the roughly $20 million in blended 2010-11 cash flow the stations are expected to generate.
Amy said Sinclair expects the Four Points acquisition to be quickly accretive and projected Sinclair will be able to grow the Four Points stations’ free cash flow “on a low teen [percentage] basis” in short order.
He noted that the stations are “in prime middle markets” and “a perfect complement to our already dominant middle market footprint.”
The Four Points group encompasses five full-power stations: KUTV (CBS) and KUSG (RTN) in Salt Lake City (DMA 33); WTVX (CW), in West Palm Beach, Fla. (DMA 38); KEYE (CBS) in Austin, Texas (DMA 49); and WLWC (CW) in Providence, R.I. (DMA 52); and two low-powers — WTCN-CA (MNT) and WWHB-CA (Azteca), both in West Palm.
Sinclair has 46 stations in markets ranging from Tampa-St. Petersburg (DMA 14) to Peoria-Bloomington (DMA 116). Most, as Amy observed, are in midsize markets.
Amy noted that the Salt Lake City and Austin stations are in state capitals, already transmit in HD and should require little in capital expenditures.
Although the deal spells the end of Nexstar’s annual $2 million management fee for operating the stations, Nexstar should still exit happy. Under terms of its contract with Cerberus, Nexstar was to receive a minimum of $10 million in fees if the stations sold within three years. The timing of the deal suggests that Nexstar will receive an addition $4 million on top of the annual management fees.
A source familiar with the deal said that Nexstar had expressed an interest in the Four Points stations but the $200 million was “substantially above” what it was willing to pay.