Private Equity Firms Eyeing Nexstar

Oak Hill Capital Partners and TPG — or possibly a combination of the two — have emerged as the top candidates to buy out Nexstar majority owner ABRY, a Boston-based private equity firm. However, virtually all private equity firms with broadcast interests are likely giving the Nexstar deal a look.

By Price Colman | August 4, 2011 | 5:44 a.m. ET.

Nexstar Broadcasting’s announcement last month that it is exploring a possible sale of the company came as management was deep in discussions with prospective buyers for ABRY Partner’s majority stake in the company.

Oak Hill Capital Partners and TPG (formerly Texas Pacific Group) — or possibly a combination of the two — have emerged as the top candidates to buy out ABRY, a Boston-based private equity firm founded by Andrew Banks and Royce Yudkoff, according to sources familiar with the situation.

Providence Equity, another private equity investor in broadcasting, also has been mentioned as a potential buyer, though sources familiar with the sector say that virtually all private equity firms with broadcast interests are likely giving the Nexstar deal a look.

Oak Hill bought the New York Times nine-station group for $575 million in early 2007, at the height of the broadcast M&A market. A year later, the private equity firm founded by legendary Texas financier Robert M. Bass bought eight stations from Fox Television for nearly $1.1 billion.

Soon thereafter, the broadcast M&A market fell into a four-year deep freeze.

As of press time, the companies mentioned either had declined to comment or had not responded to requests for comment.

BRAND CONNECTIONS

ABRY, a private equity firm, owns roughly 54% of Nexstar and has 88.4% voting control, according to recent report from Wells Fargo Securities.

ABRY’s financial backing helped Perry Sook, Nexstar president-CEO, launch the company in 1996. Nexstar put itself on the block four years ago, but economic conditions forced the company to shelve the for-sale sign then.

“Clearly ABRY is trying to monetize a position that’s pretty long in the tooth,” said Barry Lucas, Gabelli & Co. analyst.

Until the recent recession, the preferred model for private equity investments in broadcasting was putting down 20% cash up front, borrowing the remainder, using cash flow from operations to finance the loan, then cashing out in five to seven years after doubling the investment.

Economic conditions have thrown that model out the window. ABRY’s 15-year financial involvement in Nexstar is among the longest in the sector.

Although Nexstar’s stock price jumped on news of a possible sale, it has since retreated and it would take a minor miracle for ABRY to make back its investment in Nexstar. ABRY’s cost-basis for its Nexstar holdings is somewhere around $12 per share, according to various sources. Nexstar shares closed yesterday just over $8 a share.

The Wall Street Journal reported the proposed sale on July 20, putting Nexstar in the somewhat awkward position of having to issue a press release about pursuing “strategic alternatives,” including a possible sale, soon thereafter.

Nexstar’s announcement that it had selected Moelis & Co. to explore strategic options raises the possibility that another station group might step in. Two possible candidates with access to financial resources and relatively low leverage are Sinclair and Belo. Executives at those firms declined to comment. Moelis had not responded to a request for comment as of press time.