Tuesday, March 17, 2009

2009 Radio Station Trading Multiples

In January of 2008, we drew a lot of comment (most of it negative) in the radio trade press when we released our expectations for radio station trading multiples for the year. We predicted that stations would trade in a range of 7x to 9x Broadcast Cash Flow (“BCF”), which at the time, sounded very low. Those multiples represented the lowest levels in well over a decade.

Our crystal ball worked. In fact, much of 2008’s station trading occurred in a 7x to 9x range, though deteriorated toward the lower end of the range as the year wore on.

However we were wrong on our second point: we predicted a turnaround by mid-year. What we (and apparently everyone else) missed was the impact on the credit markets of the sub-prime debt debacle.

OK, so what happens this year? The following is my opinion, and not necessarily Media Services Group’s (it is my blog, isn’t it?). I think that we are in a 5x to 8x environment, likely for the rest of the year, and perhaps longer. Until the credit markets thaw, I do not see marked improvement. Trading will be sluggish at best. At lot of balance sheets have to be re-jiggered to show more equity and much less debt.

Radio is going to have to reinvent itself in order to flourish in the digital world. And unlike newspapers, I predict that it will. Once the capital structures have been repaired and the business embraces new media, then, and only then, are you likely to see revenue growth. That top line growth, if coupled with low interest rates, will result in multiples expansion. I look for a return to an 8x to 10x world. While that is nothing like we saw in the “go-go” years, it beats the heck out of what we’re seeing now. And it will create a lot of value for smart entrepreneurs who held their noses and invested in the medium when it looked like the buggy-whip industry.

At least, that’s my opinion. What's yours?