Despite speed bumps from the FCC (plans to kill JSAs and SSAs) and Aereo, many industry observers think the station trading market will heat up, with speculation that possible players include not only the usual suspects (Sinclair and Nexstar) but also Post-Newsweek, LIN, Meredith, Media General, Raycom and Sunbeam.
Station Sales: Slow, But Big Deals Possible
The M&A frenzy that reached a peak in 2013, when more than $8 billion in transactions occurred, is going to be a tough act to follow.
This year’s station trading market has gotten off to a slow start. So far, there’s been just two major transactions involving the breakup of Granite. Two stations went to Scripps for $110 million, while several others went to Quincy for $190 million, leaving Granite with two more to sell off.
But despite regulatory and legal headwinds, the action is likely to pick up, the market watchers say.
“I think that consolidation will continue,” says Edward Atorino of Benchmark Capital. “A lot of stuff is gone and I don’t know if it’s the easy stuff or bad stuff. But I think a few things are going to account for the big guys getting bigger.”
Wells Fargo analyst Marci Ryvicker said in January that the M&A market is “abuzz” regarding two sizeable deals in the $400 million to $600 million range.
And some see swaps, fill-ins and smaller one- or two-off deals in the offing.
“I think that’s the tenor of market,” says broker Larry Patrick of Patrick Communications. “There might be a couple of blockbuster deals, but the words I keep hearing is, ‘We’re trying to rationalize our ownership, we’d rather have fewer markets and doubles in the markets we have.'”
The best evidence that 2014 station market will be at least somewhat active is the high level of speculation about possible deals.
Many market watchers believe Post-Newsweek Stations is on the block. “There have been a lot of people calling on them, a lot of bankers floating that [deal] around,” says one highly placed industry source.
In addition to the always acquisitive Sinclair and Nexstar, others who are said to be buyers or sellers (or both) include LIN, Meredith, Media General, Raycom and Sunbeam.
But there are those market headwinds.
The strongest of which may be FCC’s plan to curb broadcasters ability to circumvent the agency’s local ownership limits and operate two stations in markets through the use of joint sales and shared services agreements.
With the support from the Department of Justice, the commission seems determine next month to outlaw the JSAs and considered doing the same to SSAs.
Without the JSAs and SSAs, it becomes more difficult for buyers like Sinclair and Nexstar to set up duopolies that undergird the economics of their deals.
“It feels like they’re going after Sinclair,” says a source not affiliated with Sinclair. “Sinclair has done nothing wrong. As [CEO] David Smith has said, ‘I know right where the line is, I walk right up to it but I don’t step over.’
“I don’t want to see the commission play the game of picking winners and losers,” the source says.
Litigation surrounding Aereo is also adding to market uncertainty. Backed by one-time Fox network head Barry Diller, Aereo streams broadcast TV signals to paying subscribers without compensating the broadcasters.
“I think we’re going to see M&A maybe take a little bit of breather, in part because of the Aereo litigation,” says Barry Lucas, senior vice president and analyst at Gabelli & Co.
Asserting their copyrights, broadcasters have attacked Aereo in the federal courts. After a series of conflicting opinions in the circuit courts, the U.S. Supreme Court decided to take up the case. It’s expected to issue a decision in July.
The broadcasters fear that, if they lose the case, Aereo and others using the Aereo technology will undermine their ability to negotiate for retransmission consent payments from cable and satellite operators. That would shave billions of dollars off the top line of the broadcasting industry.
Not everybody sees it that way. Investment banker Michael Alcamo of M.C. Alcamo & Co. Inc., says broadcasters could lose, but still win.
“There will be less retrans dollars, to be sure, but OTA broadcasters will have a stronger value proposition to audiences and advertisers, as consumers continue to unplug,” he says. “Net net, a victory for Aereo would be a victory for broadcasters.”
Rumored seller Post-Newsweek boasts stations in six Top 50 markets including Houston, Detroit, Miami, Orlando, San Antonio and Jacksonville. It recorded $361 million in revenue in 2012 (not counting retrans), according to BIA/Kelsey.
Assuming a seller multiple of 8X-10X trailing 2012 cash flow and a cash flow margin of 35%, it would fetch well over $1 billion.
Donald Graham, head of the Graham Holding Co., owner of the group, did not respond to a call seeking comment.
Strictly speaking, only a few groups fit the $400 million-to-$600 million price tag that Ryvicker mentions. They include Journal, Entravision, Schurz, Hubbard, Cordillera and Dispatch.
Another potential seller, some say, is Sunbeam Television Corp. With network affiliates in Boston and Miami, Sunbeam would be an attractive buy for several groups focused on larger markets.
In a year clouded by uncertainties, it’s hardly surprising that signals are mixed on who’s selling, who’s buying. LIN, Media General, Meredith, and Scripps have signaled they’re buyers.
But some see them as sellers. “Scripps and LIN are sort of the size they could become acquisition targets,” says Atorino. “Media General is in that size like LIN and Scripps where they’re not too big to be protected [from acquisition].”
One source has Media General going after LIN, while another has Media General on the way out. “The deal I hear is Raycom-Media General,” he says. “I’ve heard Raycom is pretty far down the road with those talks. Raycom would be the survivor.”