CEO Perry Sook says that while it will continue to look for acquisitions that make sense, it is also “engaged in discussions to sell some of our smaller, non-strategic assets and believe that can be done at accretive multiples to the company as well.”
Nexstar Broadcasting Group has been a big station buyer of late, having announced a deal to buy a dozen stations from the Newport group for $285.5 million in July. But in his conference call with Wall Street analysts, Chairman-President-CEO Perry Sook revealed that Nexstar is likely to do some selling as well. Not that he won’t also look at buying more stations.
“I think that we will continue to look at acquisitions opportunistically, if we can find acquisitions that are free cash flow accretive to the company and leverage neutral or nominally leverage-changing,” Sook said. “On the other side of that, we are engaged in discussions to sell some of our smaller, non-strategic assets and believe that can be done at accretive multiples to the company as well.”
Sook did not identify any particular markets as being up for sale.
Looking at the Newport sales, which totaled over $1 billion from multiple buyers, Sook said Nexstar was interested in more than the 12 stations it agreed to buy, “but not at the price at which they were offered because they would not have met our free cash flow accretion test.”
For the 12 Newport stations in eight markets that did pas the acquisition test for Nexstar (and its virtual duopoly sister company, Mission Broadcasting), Nexstar CFO Tom Carter told analysts that the new properties will be a welcome financial addition.
“In the first year following the closing of the transaction, the Newport stations are expected to contribute approximately $110 million in incremental net revenue to Nexstar’s consolidated results. In 2014 we believe that the combined entity could generate approximately $550 million in net revenue,” he said. For comparison, Nexstar’s net revenues for the past full year, 2011, totaled $247.3 million.
“The purchase price represents a multiple of approximately five and a half times the average 2011-2012 broadcast cash flow of the acquired stations after giving effect to the integrated operating improvements and synergies identified by Nexstar,” Carter said, valuing the projected synergies at around $19 million.
“As such, we expect the acquisition to generate approximately $55 million in additional EBITDA to Nexstar in year one. Most important to us, the additional station operations are expected to provide free cash flow accretion in the first year of approximately 45% over the levels expected to be generated by Nexstar and Mission’s existing operations,” the CFO said. That increased free cash flow, combined with the terms of the company’s pending $645 million secured credit facilities, is projected to reduce Nexstar’s leverage to below five times by the end of 2013 and to below three times by the end of the next election year, 2014.
Nexstar doesn’t provide detailed forward guidance to Wall Street. However, Sook did provide some color on 3Q in response to an analyst’s question about whether core business looked better or worse than 2Q.
“I would say better. We went into the third quarter with the best pacing of business on books as for any quarter this year. Some of that is Olympics. Our spot and e-Media revenue as of the opening ceremony was about $5.86 million on the books. That will grow throughout the length of the games. But that’s 42% ahead of where we were in 2008 for the Summer Olympics in Beijing,” Sook said.
“The third quarter for us looks much more positive even in July, which had the benefit of no Olympic revenue to speak of really and July was a very strong month for the company,” said the Nexstar CEO. “We’re not seeing any slowdown — more the inverse of that. The third quarter looks better to us than second quarter did, certainly on the way in.”