With four significant TV station group deals within the past year, there is a growing number of groups up for sale. But right now few buyers are willing to pay the multiples that the sellers are demanding. “Owners are either going to have to take lower prices and come out under water or hold stations for another two years," says broker Larry Patrick.
More Sellers Than Buyers In Station Market
LIN Media’s $342 million acquisition of New Vision Television, the largest transaction announced so far this year, lends a solid boost to TV station deal momentum in 2012.
It comes on the heels of three other significant station group sales in less than a year: Freedom, Four Points and McGraw-Hill.
Counting New Vision, the groups fetched more than $1 billion. And others have hung out for-sale signs.
“It seems private equity decided this is a great year [to get out] … with political pouring in,” says Larry Patrick of Patrick Communications, a prominent station broker and investment banker.
“Suddenly the dam has broken and private equity and hedge funds are rushing to the table to sell stuff.”
But, Patrick cautions, it’s going to take some compromising to get deals done this year. “Owners are either going to have to take lower prices and come out under water or hold stations for another two years.”
Nexstar, Newport and Titan Media are actively looking for buyers. Others — Young, Granite, Communications Corp. of America — have tested the waters but have withdrawn, at least temporarily.
Granite and CCA, both owned by Silver Point Capital, reportedly have recapitalized and are ready to sit it out until somebody offers something closer to the asking price multiple of around 9 times cash flow.
Sagamore Hill Broadcasting is also reportedly on the block. In addition, some small, family-owned groups may soon seek to take advantage of looser bank and credit markets.
Media General, which faces a looming covenant default, has been under pressure from investors to sell … something, anything.
In the company’s first-quarter earnings call earlier this year, management publicly discussed selling newspaper assets. One institutional investor, Kinnaras Capital Management, in a letter to Media General CEO Marshall Morton, excoriated him for the company’s poor performance and urged him to sell the company’s broadcast division.
Barry Lucas, SVP at Gabelli & Co., thinks Nexstar, which has been trying to come up with a deal to buy out its private equity owner ABRY, will be next to announce something.
“I think we’ve got to be getting closer to some resolution one way or the other,” Lucas says. “This can’t be an open-ended process …. That’s the one that strikes me as more proximate.”
Michael Alcamo, of investment banking firm M.C. Alcamo, expects to see some more large deals this year. He cites three key reasons: First, certain private equity owners are reaching the end of their targeted holding period; second, broadcast groups are getting credit for robust 2012 operating metrics; and third, debt financing is more readily available than any time in the past two years.
Damian Riordan of Peloton Media Advisors also sees M&A gaining traction. “There’s been deceleration in seller multiples,” he says. “Buyers are able to realize synergies, as well as increased negotiation leverage with MVPD’s and their network partners. Financing is available, retrans is real and the scale is considerable.”
As always, the big obstacle to deals getting done is price.
Some private equity owners are under water on their investments, having bought at the market peak around 2007.
Providence Equity, for instance, helped launch the Newport group in 2007-08 with the $1 billion acquisition of former Clear Channel stations. That translated into a multiple of nearly 14 times cash flow.
Now, seller multiples of 9-10 times EBITDA are the high end.
Alcamo says recent deals validate a 9 times cash flow multiple where the deal doesn’t help the buyer create duopolies. Deals that do create duopolies may merit multiples of roughly 10 times, he says.
Even with banks willing to lend at 3.5-4 times cash flow; bond markets receptive to financing deals; and potential strategic buyers having improved leverage margins and stashed some dry powder for deals, there’s still a gap between ask and bid.
Another issue, as several in the investment community noted, is that private equity is reluctant to buy from private equity, figuring that the easy economies that buyers seek have already been had.
Also, buyers tend to look for opportunities to create duopolies within their market focus. Thus, a big-market owner is unlikely to consider buying into smaller markets.
There are potential strategic buyers. They include Sinclair, E.W. Scripps, Hearst and Meredith.
Sinclair boss David Smith has said in the past that he’d consider boosting the group’s station count to 100 — it’s now at 74 — but the group is disciplined about reducing debt-to-cash flow ratios and will approach future buys with caution after spending $585 million on Four Points and Freedom.
But Smith is always interested in creating duopolies and yesterday announced a creative deal with Fox as part of a four-year affiliation renewal beginning in 2013. Fox gave Sinclair the option to buy at market value Fox’s WUTB, the MyNetwork affiliate in Baltimore. That would allow Sinclair to create a duopoly with its flagship Baltimore Fox station WBFF.
In return, Sinclair gave Fox the option to buy Sinclair’s MNT/CW affiliates in up to three of four markets: Raleigh, N.C.; Las Vegas; Cincinnati; or Norfolk, Va., at fair market value.
The Sinclair-Fox deal proves there are lots of paths to M&A. As one source in the investment community put it: “I don’t give a s— how deals get done, just that they get done.”
With the exception of LIN-New Vision, the deals getting done this year have been small ones.
So far, 2012 is just slightly behind last year in deal volume and dollars. According to data from BIA/Kelsey, as of the end of April, there were 13 deals totaling $98 million versus 14 deals totaling $103 million last year in the same period. The LIN-New Vision deal was announced earlier this month and thus not included in the numbers.
NRJ Ventures, in which Larry Patrick, Bert Ellis and Ted Bartley are partners, is among the most active buyers. NRJ’s buying binge, which kicked off about a year ago, stems from its spectrum strategy: Acquire struggling stations in top markets and sell their spectrum in the FCC’s voluntary spectrum auction. The FCC has targeted precisely those big markets where NRJ is buying to reclaim spectrum.
NRJ has inked deals ranging in value from the low million-dollar range to nearly $35 million. And it’s looking at a handful of additional transactions. So far, it’s spent about $125 million on deals, including buying distressed debt, then taking ownership of stations coming out of bankruptcy as it did with KSCI in Los Angeles and WSAH in New York (Bridgeport, Conn.).
NRJ isn’t alone in spectrum speculation. OTA Broadcasting, the company controlled by Dell Computer founder Michael Dell, also is buying stations in top markets in hopes of cashing in on the spectrum auction, sources say.
OTA acquired three stations last year and has its eye on four or five more, according to a source close to the deal market.
Other transactions include H3 Communications’ $3 million purchase of Saga’s WXVT Greenwood-Greenville, Miss.; Journal Broadcast’s $2 million buy of Ace TV’s WACY Green Bay, Wis.; Casa Media Partners’ $9 million purchase of KQCK Cheyenne, Wyo., and KQDK-CA Denver.
The LIN-New Vision deal is an example of how larger deals can happen.
New Vision was ripe for a takeover, having recovered a 2009 pre-pack bankruptcy in 80 days with $400 million in debt erased and a clean balance sheet.
LIN actually approached New Vision about buying the group early this year, according to sources, and put an offer on the table. But for New Vision, LIN’s offer wasn’t close enough to the near 10 times cash flow asking price.
After talking with a select group of potential buyers — buyers who apparently couldn’t make the numbers work, either — New Vision returned to LIN and worked out a compromise: $330.4 million in cash and the assumption of $12 in debt.
What was the multiple?
It depends on who you ask. New Vision’s “seller’s multiple” was somewhere in the 9 times EBITDA arena, around 8.5 times broadcast cash flow. LIN’s buyer multiple: just under 6 times, according to the company.
LIN’s buyer’s multiple reflects the extra income and savings LIN anticipates from enhanced retransmission fees; increased economies of scale for programming and hardware purchases; and reduced corporate expenses.