Allbritton Could Fetch More Than $900 Million

In the wake of Allbritton Communications’ decision to put itself up for sale, two core questions emerge: Who are the likely buyers and how much will the company fetch?

Second question first. Some analysts think the group could go for something approaching $1 billion.

“Allbritton’s timing in coming to market is excellent,” says Michael Alcamo, president of the M&A advisory firm M.C. Alcamo & Co. “By seeking a sale in the summer, the company gets full credit for the strong political spending in 2012, blended with 2011.

“Moreover, the transaction is catching a rising tide in the M&A market.  We expect a multiple of 10x the average aggregate [broadcast cash flow] for 2011-12.” 

Albritton’s average blended 2011-12 EBITDA, usually lower than broadcast cash flow because corporate overhead has been deducted, comes in at around $92.3 million. At 10x, that translates into more than $920 million. (Editor’s note: The preceeding paragraph has been corrected from an earlier version.)

Ten times is on the high side of sellers’ trading multiples these days — Nexstar Broadcasting Group CEO Perry Sook told securities analysts yesterday that they now range between 8x and 10x — but Allbritton may be worth it.

Here’s why: The crown jewel in Allbritton’s portfolio is WJLA Washington (DMA 8). That alone makes the Allbritton sale particularly noteworthy and could confer benchmark status on it.

WJLA is the first top-10 Big Four affiliate to go on the block in more than a decade. The last were WMUR in Manchester, N.H., which covers Boston (DMA 7), and WGCL in Atlanta (DMA 9). They changed hands in 2001 and 1999, respectively.

“It’s very rare for a top-10 station with a Big Four affiliation to come up for sale,” says Larry Patrick of Patrick Communications.

WJLA is a solid No. 2 in news (behind NBC O&O WRC) and comes with NewsChannel 8, a thriving regional cable news channel, and two digital subchannels, Me-TV and Live Well. Together, WJLA and NewsChannel 8 produce 114 hours a week of news, public affairs and other local programming.

Moreover, as many in the financial sector note, Allbritton, like nearly every other station group in the country, is coming off a record political year and WJLA likely was among the biggest beneficiaries of the political spending.

“The thing about Washington was it was unbelievable, maybe the top political market this past season,” says one financial analyst.

While there were important Congressional races in surrounding states, issues advertising, including the casinos referendum in Maryland, gave the D.C. DMA a big boost.

“Allbritton benefits strongly from the tremendous growth in political advertising by independent committees, unleashed after Citizens United,” says Alcamo.  “Importantly, unlike direct candidate advertising, issue and committee advertising is not required to be billed at the lowest unit rate. “

In Allbritton’s 10Q for the first quarter ended Dec. 31, 2012 (Allbritton’s fiscal year ends Sept. 30), the company reported revenue of $71 million. That’s more than a 35% jump from the comparable quarter in the previous year. Both quarters included political revenues, though fiscal 2013’s first quarter clearly was stronger.

Allbritton’s margins are worth noting as well: nearly 40% in 2012, 33.1% in 2011, yielding a blended average of 36.1%.

Sinclair has put an 8.5 times buyer multiple on its recently announced acquisition of Fisher Communications. At 8.5 times, Allbritton could bring nearly $785 million. But while the Fisher acquisition marked Sinclair’s entry into larger markets, there’s a difference between Seattle (DMA 12) and Portland (DMA 22) and Washington, D.C., and that Top-10 ranking likely will produce a premium.

Which brings us to potential buyers.

This is a transaction that could turn ABC, which has shown more inclination to sell stations than buy, into a buyer — but only for WJLA.  Networks like Top-10 Market O&Os.

“I think ABC will get WJLA,” says one source familiar with broadcast M&A.

The source notes that while the network doesn’t have a right to the station, it does have some influence over whether a new owner gets to keep the affiliation. Case in point: When Young infamously outbid NBC for KRON in San Francisco, NBC pulled its affiliation.

But in his first-quarter conference call with securities analysts on Tuesday, Bob Iger, CEO of ABC parent Walt Disney Co., did not sound enthusiastic about local TV.

“Station business has been generally soft…,” he said. “And even though our stations are performing well in their markets and actually in some markets growing share nicely, the markets themselves are basically compressing or getting smaller.”

Sinclair’s the next obvious possibility. There are pros and cons here, as well. On the pro side, Sinclair’s on a buying streak and CEO David Smith has been frank about his desire to be the biggest of the big. As a top-10 market, Washington might be slightly outside Sinclair’s comfort zone, but considering the Fisher deal, not by much.

And several of the other Allbritton stations — including those in Birmingham, Ala. (DMA 42); Harrisburg, Pa. (DMA 43) — would afford Smith the opportunity to own multiple stations in a market.

A key determining factor for Sinclair is whether buying Allbritton will offer synergies that make it accretive, if not from day one, at least very early.

“I think they’re going to be very interested,” says one analyst. “They’re in Baltimore, that’s not too far away. And David Smith is certainly a political guy — he spends plenty of time in Washington. Plus, the market is giving him so much credit for acquisitions right now and it would be very easy to manage from where they are. I think the political influence would be very interesting to them. Big markets aren’t where they’ve been, but I don’t think there’s anything precluding that.”

Nexstar, which is almost as eager to grow as Sinclair, is another possibility. With the exception of WJLA, the stations fit Nexstar’s criteria. As with Sinclair, however, the issue is Nexstar’s ability to achieve synergies that make the acquisitions accretive quickly.

At least five other groups are potential contenders: LIN, Hearst, Belo, Scripps and Raycom.

LIN, which Sinclair outbid for Fisher, clearly is interested in growing, has numerous top-50 market properties and, based on its willingness to pursue Fisher, appears to have the financial capacity to make a high-dollar deal work.

Amid the flurry of M&A, Hearst and Belo have been quiet so far. Both clearly are experienced and successful across markets of different sizes and both groups hold a number of big-market assets. However, the smaller market stations are less likely to be on their wish list.

With its acquisition of the McGraw-Hill properties, Scripps has demonstrated a willingness to step into the M&A ring. It is also the single largest owner of ABC affiliates.

Raycom, which has also been quiet so far, is a bit of a wild card. With 42 stations, of which eight are in top-50 markets, it has a solid portfolio. Geographically, the Allbritton stations — most of them in the south — would mesh with Raycom’s holdings. And, like the others, Raycom is widely considered a strong, efficient operator.

“They’re a perfect fit for Raycom,” one source says.

If the timing on announcing the sale is savvy, the timing of closing may be even more crucial. “[Allbritton] is well-advised to get a sale done this summer,” says Alcamo. “We calculate that in the Nielsen rankings this September, Washington D.C., and Atlanta are likely to change Nielsen positions.”