Friday, November 20, 2015

Thoughts on Station Pricing from Radio Ink’s Forecast 2016

Yesterday’s post dealt with some of the macro issues facing the radio station trading market going into the new year.  Today, I would like to offer some comments regarding station pricing.

The private marketplace today is trading in the 6.0x to 7.0x range, with outliers in the 5’s (primarily small markets) and occasionally approaching 8.0x (usually a strategic deal).  I believe that there is slight upward pressure on the multiples, due primarily to the lack of inventory.  My colleagues took an opposing view, citing the almost certainty of rising interest rates in our future.  They are correct that over the long term, multiples move opposite interest rates (i.e. when rates go up, multiples come down).  But interest rates are at historic lows, and we can absorb modest increases for some time before they exert sufficient pressure on multiples to make a difference.

At the present, there are qualified buyers, and there are lenders ready, willing, and able to finance transactions.  The only thing missing is good station inventory.  That will change (it always does).

The regulatory question came up, specifically whether or not a loosening of the ownership rules would help.  The short answer is “yes.”  Certainly an elimination of the subcaps would be a positive.  But the regulators seem to always lag marketplace realities.  We’ve been talking about the elimination of the antiquated cross-ownership rules for decades, yet they are still in effect.  Ironically, with the demise of the newspaper business and changes in the TV world, cross-ownership is no longer a big issue.  If the rules went away tomorrow, little would change.

One subject which didn’t come up, but probably should have, is broadcast towers.  There is a built-in pricing arbitrage which broadcasters should consider.

Thanks to Deborah, Eric, Drew, Peter, and the others who provided me the opportunity to participate in Forecast 2016.  It was great.