FAQ's about radio and television station trading

Over the course of the next few weeks, I plan to post some of our most frequently asked questions (along with our most frequent responses!).  Please feel free to add to the conversation with your own questions. 

Q:  "I’m new to this. Where can I get pointers on buying my first radio station?"

A:  Consider attending the NAB Radio Show. You might also take a look at the books in the NAB Store. Refer also to this white paper (registration required). I address first-time-buyers on occasion in this blog, so you may want to consider subscribing.  You can check out a post HERE ("Buying Your First Station") from a few years ago which is still relevant today.

George
Media Services Group

Wall Street's Wild Ride

A common discussion theme in recent weeks has been the impact of the ongoing stock market volatility/wealth destruction on station trading and values. While the gyrations have certainly exacted a psychological toll, I do not believe that they have hindered private market station trading and valuations. Yet.

At least so far, this has not been like Fall 2008, when the brakes were applied with full force. You will recall that at that time, there was some (genuine!) fear of a world-wide economic collapse. This time, the fear seems a little more future oriented (i.e. “we may still face major hurdles, but not this afternoon”). The bank weakness in Europe and the possible repercussions are bad, but not life-threatening. Likewise, the spending problem in Washington is curable once the politicians grow the backbone to actually deal with it.

I think the real and immediate fallout to broadcasters is the fear on Main Street created by this economic roller-coaster. Job cuts, taxes, over-regulation, and poor visibility are forcing companies to think twice before committing marketing budgets. The broadcasters have been pretty immune to these cuts so far, but that immunity will not last much longer.

Station trading, while up over the last two years, remains tepid. The banks are mostly hunkered down on the sidelines and the current turmoil may result in them staying there longer than they might have otherwise. That will most definitely hinder station trading and pricing. The deals that are currently getting done tend to fall into two broad categories: 1) Distress sales and 2) Seller financed small market transactions. Look for that trend to continue.

Our view on multiples continues to be in a range of 6x – 8x, with the few deals which are actually getting done falling in the mid-7s. If the chaos on Wall Street continues and the “double-dip recession” prospect increases, look for the multiples to drop. But it hasn’t happened yet.
 
Bottom line: the damage so far is mostly attitudinal (read “fear”). But if capital continues to vaporize, we’re in for a long, difficult second half. And as for visibility, we’re already flying on instruments. Main Street cannot and will not ignore Wall Street forever.

George
Media Services Group

MSG transactions for the first six months of 2010

The bad news is that is was a very slow first half of station trading. The good news is 1) it was a lot more active than a year ago, and 2) things are shaping up nicely for the second half. Here are the transactions announced by Media Services Group for the first six months (Note: we used BIA estimates of revenue):

Sale Announced: 01/10
Calls: WMNE-AM (now WHTY-AM)
Buyer: Travis Media
Seller: Radio Disney
Market: West Palm Beach-Boca Raton
Market Rank: 47
Price: $500,000
Gross Revenue (BIA): $150,000

Sale Announced: 3/10
Calls: FM CP
Buyer: Chadrad Communications Inc.
Seller: Big Cat Broadcasting, LLC
Market Rank: Unrated
Price: $85,000
Gross Revenue (BIA): N/A

Sale Announced: 2/10
Calls: KCUV-FM, KJAC-FM
Buyer: Moreland Properties, LLC
Seller: NCR Broadcasting Inc.
Market: Denver-Boulder
Market Rank: 20
Price: $5,000,000
Gross Revenue(BIA) : $800,000

Sale Announced: 3/10
Calls: KDJQ-AM
Buyer: Iglesia Misionera Pentecotes, Inc.
Seller: KDJQ, LLC
Market: Boise, ID
Market Rank: 100
Price: $325,000
Gross Revenue (BIA): N/A

Sale Announced: 4/10
Calls: WCKZ-FM, FMW204BF
Buyer: Star Educational Media Network
Seller: Northeast Indiana Public Radio
Market: Orland, IN
Market Rank: Unrated
Price: $225,000
Gross Revenue (BIA) : N/A

Sale Announced: 5/10
Calls: AM CP
Buyer: Acme Broadcasting III
Seller: Pamplin Broadcasting Inc.
Market: Reno, NV
Market Rank: 121
Price: $20,000
Gross Revenue: N/A


Sale Announced: 7/10
Calls: WHPI-FM, WPIA-FM, WZPN-FM, WWCT-FM
Buyer: Big Toe Communications, LLC
Seller: Independence Media Holding, LLC
Market: Peoria
Market Rank: 150
Price: TBA
Gross Revenue: $1,350,000

George
Media Services Group

New poll on radio station pricing added to blog

Let's try a little experiment. I am asked daily about station trading market pricing (after all, that is my day job). Station buyers and sellers want to know what stations are worth. So I thought it might be interesting to poll our readers on the subject. Though not scientific, it might prove interesting, as our readership tends to be station owners, managers, staff and other folks interested in the broadcast trading market.

To participate, find the poll on the upper right-hand-side of the blog and pick your choice (ranging from five times to nine times).

Here is a related post on the subject of station pricing ("What's it worth?"): http://georgereedradiotv.blogspot.com/2009/10/whats-it-worth.html

Thanks in advance for your participation!

George
Media Services Group

New station comp in our "What's it Worth?" series

Last month, I profiled the ten most meaningful radio transactions (with sale prices of $5 million or more) in 2009, in an attempt to focus in on current station values. (See http://georgereedradiotv.blogspot.com/2009/10/whats-it-worth.html).

Today, I add one more to the list, Bill Saurer's Principle Broadcasting's purchase from the Aloha Station Trust of KCNL in San Jose):

Market: San Jose

Sale Announced: 11/09

Calls: KCNL

Buyer: Principle Broadcasting

Seller: Aloha Station Trust

Market Rank: 35

Price: $5,000,000

Pop Count: 2,032,316 (BIA)

Cost per Pop: $2.46

Comments:

This sale represents the lowest cost-per-pop for the year; it should be a good purchase for Principle. So does that mean that station values continue to fall? I don't think so. I maintain that the "market" is 6x to 8x BCF for cash flowing stations, and $2.50 to $3.50 per pop for FM sticks. Trading discussions continue to pick up, and a number of sellers are now willing to provide seller financing. That bodes well for a pickup in trading activity in first quarter of 2010.

"What's it worth?"

The two most common questions in a media broker’s life are:

1) What is my station/cluster/company worth?

2) What is HIS station/cluster/company worth?

Good brokers can usually respond quite accurately. But those questions have been a lot more difficult to answer over the last year. Liquidity vaporized, multiples dropped, and the bid/ask spread widened. If a buyer will buy and a seller will sell at 7x Broadcast Cash Flow (“BCF”), but there is no capital available to complete the transactions (or the assets are secured by an 8x bank loan), is the business really worth 7x?

While year-to-date radio transaction volume is a fraction of last year’s (which, in turn, was a fraction of the year before’s), let’s look at what actually DID sell so far this year. I queried our BIA database for all 2009 sales greater than or equal to $5 million which included at least one FM facility. From the resulting list of transactions, I eliminated two (one which was not an “arms-length” deal and one which was a “move-in” play) and added one (which was actually announced in late 2008, but closed in 2009). These ten deals should give us a good idea of station pricing in 2009:

1) Denver 12/08 CBS to Wilks
2) Hartford 02/09 Aloha Station Trust to Red Wolf
3) Portland # 1 05/09 Rose City to Alpha (Larry Wilson)
4) Las Vegas 05/09 Beasley to Royce
5) Pittsburgh 05/09 Sheridan to St. Joseph Missions
6) San Francisco 07/09 Flying Bear to Royce
7) Indianapolis 07/09 Oasis to EMF
8) Portland # 2 08/09 CBS to Alpha
9) New York 07/09 New York Times to Univision
10) Boston 09/09 Nassau to WGBH Educational

Let’s examine each of these in more detail. At the end, we will attempt to draw some conclusions. In each case, I used data from BIA except for Agency Commission (assumed 12% of gross revenue) to estimate Net Sales, and BCF Margin (where I used a hypothetical percentage which would be consistent with the reported revenue). For “stick” deals, I looked at the Cost per Pop as the primary metric. The Pop Count represents the number of persons under the 60 dBu contour for FM stations, and the 2.0 mVm contour for AM’s.

1) Denver

Sale Announced: 12/08
Calls: KIMN-FM, KWLI-FM (now KWOF-FM), and KXKL-FM
Buyer: Wilks Broadcast Group
Seller: CBS Radio
Market Rank: 21
Price: $19,500,000
Gross Revenue: $14,400,000
Net Revenue: $12,672,000
BCF Margin: 40%
BCF: $5,068,800
Multiple: 3.9x
Comments:

I believe that the actual net revenue was closer to $10,000,000; at a 30% margin, you get BCF of $3,000,000. Under these revised assumptions, this would be a 6.5x deal. Even at a much lower cash flow, Jeff Wilks and his venture partners at Wicks made a great purchase. These are three good technical facilities with significant revenue.

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2) Hartford

Sale Announced: 02/09
Calls: WURH-FM (now WMRQ-FM)
Buyer: Red Wolf (John Fuller)
Seller: Aloha Station Trust
Market Rank: 50
Price: $7,900,000
Pop Count: 2,180,405
Cost per Pop: $3.62
Comments:

The Seller is Clear Channel’s Aloha Trust. The station is in the New Haven market but also reaches into Hartford. I evaluated this deal as a “stick.”

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3) Portland # 1

Sale Announced: 12/08
Calls: KXL-AM and KXTG-FM
Buyer: Alpha Broadcasting LLC
Seller: Rose City Radio Corp.
Market Rank: 23
Price: $11,000,000
Gross Revenue: $7,750,000
Net Revenue: $6,820,000
BCF Margin: 30%
BCF: $2,046,000
Multiple: 5.4x
Comments:

This deal gave Larry Wilson his platform in Portland (upon which he has subsequently grown; see below). This cluster originally was purchased for $55,000,000; by my reckoning, that is a $44,000,000 haircut.

The Seller is owned by radio veteran and Microsoft co-founder Paul Allen. Larry Wilson, founder of Citadel, is returning to the business after an eight year hiatus.

The combo is home to the NFL Seattle Seahawks, University of Oregon Ducks football, and the NBA Portland Trail Blazers. Both pro teams are owned by Paul Allen.

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4) Las Vegas

Sale Announced: 05/09
Calls: KYCE-FM (now KFRH-FM) and KBET-AM
Buyer: Royce International
Seller: Beasley Broadcast Group
Market Rank: 33
Price: $15,250,000
Pop Count: 1,376,084 (FM)
Cost per Pop: $10.90 (This assumes that the AM was worth $250,000
Comments:

Ed Stolz bought the AM plus the KYCE facility (but not the country format). Instead, he got the CHR format from KFRH (with country flipping to KFRH). I evaluated both stations as “sticks.” This high Cost per Pop is reminiscent of numbers from a few years back, and is an outlier in my analysis. Absent any additional facts on this transaction (such as perhaps some valuable real estate), it looks like George Beasley made a good sale.

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5) Pittsburgh

Sale Announced: 05/09
Calls: WAMO-FM (now WAOB-FM), WAMO-AM (now WAOB) and WPGR-AM (dark)
Buyer: St. Joseph Missions
Seller: Sheridan Broadcasting
Market Rank: 24
Price: $8,900,000
Pop Count: 1,761,970 (FM)
Cost per Pop: $4.48 (This assumes that the AMs were worth $1,000,000)
Comments:

These stations were taken non-commercial with new formats. I evaluated them as sticks, assigning a $1,000,000 value to the two AM’s. Seller Sheridan Broadcasting also operates the American Urban Radio Network.

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6) San Francisco

Sale Announced: 07/09
Calls: KNGY-FM (now KREV-FM)
Buyer: Royce International
Seller: Flying Bear Media
Market Rank: 4
Price: $6,500,000
Pop Count: 2,287,314
Cost per Pop: $2.84
Comments:

This station was originally purchased for $33,700,000; another big haircut on our list. And the sale price represents the lowest Cost per Pop on our list, a great buy for Ed Stolz.

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7) Indianapolis

Sale Announced: 07/09
Calls: WKLU-FM
Buyer: Educational Media Foundation
Seller: Oasis Radio Group
Market Rank: 40
Price: $4,750,000
Pop Count: 1,049,007
Cost per Pop: $4.53
Comments:

Based on the Cost per Pop, Russ Oasis did well on this sale. He sold his real estate separately for $1,550,000.

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8) Portland # 2

Sale Announced: 08/09
Calls: KCMD-AM, KINK-FM, KUFO-FM, and KUPL-FM
Buyer: Alpha Broadcasting LLC
Seller: CBS Radio
Market Rank: 23
Price: $40,000,000
Gross Revenue: $23,800,000
Net Revenue: $20,944,000
BCF Margin: 40%
BCF: $8,377,600
Multiple: 4.8x
Comments:

This is the icing on the cake for Larry Wilson’s effort in Portland. My guess is that the actual cash flow is lower than in the above analysis, probably closer to $7,000,000. That would yield a 5.7x multiple. This gives Larry a 26.6% revenue share of the market.

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9) New York

Sale Announced: 07/09
Calls: WQXR-FM
Buyer: Univision
Seller: New York Times Co.
Market Rank: 1
Price: $45,000,000
Pop Count: 15,354,286
Cost per Pop: $2.93
Comments:

WQXR was New York’s oldest classical music station. Univision is really paying $33,500,000 plus their WCAA-FM (Newark) facility. The Seller is keeping Univision’s cash, but flipping the WCAA facility and classical format to WNYC Radio for $11,500,000. WNYC Radio is operating 105.9 mHz as a non-commercial station. Univision retains their original WCAA call letters.

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10) Boston

Sale Announced: 09/09
Calls: WCRB-FM
Buyer: WGBH Educational Foundation
Seller: Nassau Broadcasting I
Market Rank: 10
Price: $14,000,000
Pop Count: 3,913,794
Cost per Pop: $3.58
Comments:

I sold the original WCRB (now WKLB), albeit a much better technical facility, in 2006 for $100,000,000. My how things have changed! This sale was forced by Nassau’s lenders. The buyer, WGBH Educational Foundation, also owns public station WGBH-FM and digital PBS affiliates WGBH and WGBX in Boston.


To summarize, these comps tell a pretty consistent pricing story. Trading volume remains anemic and pricing soft. While I believe that cash flow multiples have bounced off of the bottom, I am seeing bids around 6x and asking prices around 8x. Sticks are trading around $2.50 to $3.50 per pop.

There is virtually no senior debt available for transactions, and until that changes, I do not look for significant pricing improvement. There is also the possibility of a glut of station inventory in the event that one (or more) of the major public companies implodes and restructures, forcing asset sales.

On the plus side, there has been improvement in the values of public broadcasting stocks and bonds, and there is some private equity on the sidelines.

“So what is my station worth?”

George

http://www.mediaservicesgroup.com/location.cfm?id=3

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?

George