Mike McKinnon has put in a bid for the four stations, but is particularly interested in ABC affiliates KGTV San Diego, which he could pair with his KUSI independent, and KERO Bakersfield, Calif. The McGraw-Hill group also includes KMGH Denver and WRTV Indianapolis.
McKinnon Has His Eye On McGraw-Hill TVs
Veteran broadcaster Mike McKinnon says he’s submitted a bid for McGraw-Hill’s four-station group and would pay for the deal primarily with cash.
McKinnon, whose broadcast history is mostly in smaller Texas markets, said he’s been told there are higher bids and he doesn’t expect to win the overall group.
He declined to disclose terms of his offer, saying he’s signed a non-disclosure agreement with McGraw-Hill. He did say he has financing for the bid mostly in place.
“I think anybody selling a station today, depending on where it is in the marketplace, is looking at getting five to eight times cash flow,” he said. “I think 10 is going to be hard to get. The crazy days are over,” he said.
People familiar with the broadcast M&A sector speculate that McGraw-Hill is seeking about a 10x cash flow multiple for the stations. According to a source familiar with the sales prospectus, estimated blended 2010-11 broadcast cash flows at the four stations total just under $20 million. That implies an asking price of roughly $200 million for the group.
McKinnon said he’s specifically interested in ABC affiliate KGTV San Diego (DMA 28), where he already owns KUSI, an independent. He’s also interested in KERO, the ABC affiliate in Bakersfield, Calif. (DMA 125).
Acquiring KGTV would give McKinnon a duopoly in San Diego, a market he characterized as a “glamorous,” while cautioning that, “You have to be a grown-up to play in that market.”
A source familiar with the San Diego market said KGTV’s revenues have dropped by roughly half over the past four years. The source familiar with McGraw-Hill’s sales prospectus said blended 2010-11 net revenues in San Diego are projected to be about $25.8 million with a cash-flow margin of roughly 20%.
“I think in broadcast right now — and I’ve been doing this for 40 years — if you’re not doubling up, it’s a tough road,” McKinnon said, citing potentially overhyped retrans revenues, reverse compensation and syndication costs.
His plan for KERO Bakersfield, were he to acquire it, would be to “fix it,” he said.
KERO’s blended 2010-11 revenues are an estimated $4.6 million, with a 20% cash flow margin, according to the source familiar with the prospectus.
The McGraw-Hill group also includes KMGH Denver (DMA 17) and WRTV Indianapolis (DMA 27). Primetime news broadcasts at all four stations rank no better than No. 3. According to the sales prospectus, Denver has the best net revenues in the group, just under $42 million, while Indianapolis ranks third at $20.7 million.
McKinnon last year sold KIII, the ABC affiliate in Corpus Christi, Texas, to London Broadcasting for $31.3 million. “I pretty much got the asking price,” he said.
McKinnon said that while McGraw-Hill is hoping to sell the group as a block, he’s hoping they realize they could get more in total by selling the stations piecemeal.
George Lilly’s SJL Holdings has submitted a bid for WRTV, the ABC affiliate in Indianapolis, with financial backing from Sankaty Advisors, a division of Bain Capital.
McKinnon said he talked to Lilly about coordinating their purchases but has not heard back from Lilly.
He said that if the McGraw-Hill group does sell as a block, “my guess is that it’s not a station group but a private equity group” that gets it.