Friday, August 19, 2011

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.

Media Services Group

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