There are plenty of stations on the market and plenty of buyers in the market, brokers say. The industry awaits news on the sale of the nine New York Times stations for a read on prices.
Those in the market to buy TV stations now have more to choose from than at any time in more than a decade, say station brokers and analysts, and the list of available properties could grow even longer in the coming months.
“More broadcasters are realizing this is probably a good time to cash out and make some pretty good money,” says Larry Patrick, president of Patrick Communications, a leading broker.
At the top of the for-sale list: the 35 stations of Clear Channel Television and nine network affiliates of The New York Times Co. Under pressure from shareholders, Tribune Co. is also looking at ways of restructuring itself, including selling off some or all or some of its stations. Indeed, it spun off three stations in 2006.
Despite the ample supply, brokers and broadcasters say demand is also strong and prices will hold up in 2007 and continue to hover around 12 times cash flow.
For a read on prices, the industry is awaiting news on the New York Times stations. The company has been entertaining suitors since September and has said it would announce a deal early this year
With plenty of sellers and buyers, 2007 could match the intense TV station-trading activity in 2006.
The two biggest 2006 deals involving TV stations were the takeovers of Clear Channel Communications ($26.7 billion) and Univision ($13.7 billion) by private equity firms. (To help finance their deal, the buyers of Clear Channel are spinning off the TV group as well as some small-market radio stations.)
The Clear Channel and Univision deals included substantial assets other than TV stations. But there were many pure TV deals in 2006 to keep brokers and investment bankers flush. Four were in excess of $200 million.
Media General bought four stations from NBC for $600 million in the year’s biggest TV-only deal. Barrington Broadcasting more than doubled its size, buying 12 stations in nine markets from Raycom for $262 million.
Randy Bongarten, with private equity backing, purchased Bluestone TV‘s eight full-power stations for $230 million. And Hearst-Argyle created a duopoly for itself in Orlando, Fla., by buying WKCF from Emmis Communications for $217.5 million.
Among the reasons for the long TV station listings today is exasperation. Broadcasters in small and mid-size markets have finally given up waiting for the FCC to relax its ownership rules—a move that would have increased demand and the market value of their stations. With the Democratic takeover of Congress, it seems increasingly unlikely that regulatory relief will ever come.
Stirring the demand side are deep-pocketed private equity firms. They are attracted by broadcasting’s large and reliable cash-flow margins, which they can leverage to cover generous purchase prices.
“There’s a lot of money out there looking for potentially strong gains coming back to local media and this helps an awful lot to prop up prices,” says Mark Fratrik, VP of BIA Financial Network, a firm that tracks every station sale.
Also in the market are well-established station groups looking to expand or upgrade their market profiles or, more typically, to acquire a second station in a market. All three of the Tribune stations sold in 2006 are now in duopolies.
TV broadcasting has suffered in recent years from the shrinking of two revenue streams—national spot and network compensation. But buyers believe that those losses will be more than offset by gains from Web sites, multicasting, local spot and retransmission consent.
“Retransmission consent could be very significant over the next few years in terms of increasing station values,” Fratrik says. “They may not be that high in relation to ad revenue, but most of it goes straight to the bottom line.”
For the most part, the private equity firms are looking for big deals. Lenders like scale and having a diversity of markets and network affiliates mitigates risk.
“They prefer to do a platform deal and spin off non-performing assets and use the proceeds to pay down some of the debt,” said Brian Prior, VP of Media Venture Partners’ media group, who says some of the Univision stations may be cast off in the coming months for this reason.
This influx of new capital is changing the business in some ways, according to Patrick. Unlike the traditional station groups that put together their portfolios for the long haul, these buyers are looking for quick returns on their investments.
For instance, Providence Equity Partners teamed with manager Sandy DiPasquale in July 2002 to buy Bluestone Television for $180 million, then turned around and sold it for $230 million last November to New York equity firm Diamond Castle Holdings and veteran broadcaster Randy Bongarten.
“The new guys are in and out in three to five years,” Patrick says. “They come in, crank up the value and sell it. They want to see results in the short term. They’re not going to spend years developing new programming or grooming talent. They go for the quick fix.”
In general, the private equity firms are looking for old school, well-run family groups in mid-size markets that are well positioned locally, but that have not taken advantage of modern “efficiencies” like downsizing and automating newsrooms.
They also won’t pull the trigger on a purchase unless they have an idea about whom they can sell the stations to down the road.
“How do we exit? This is the big question you never got in the old days. If the market is a chessboard, they are plotting strategies six or eight moves ahead,” Patrick says.
Not all stations are flying off shelves, brokers caution. The large amount of inventory is partly due to the fact that some stations have gone stale on the market, mostly those without Big Three affiliations.
“The stuff that is languishing are sticks without proven programming,” says Prior. “There is a lack of people with a viable plan to program these stations.”
Emmis Communications, which decided to exit the TV business in May 2005, still has two stations that have yet to find a buyer—Fox affiliate WVUE New Orleans and CBS affiliate KGMB Honolulu along with its two satellite stations in Hilo and Wailuku.
Wayne Karrfalt is a freelance writer based in Seattle. He can be reached at [email protected].