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.

Thursday, November 19, 2015

Crystal Ball Gazing at Radio Ink’s Forecast 2016

I enjoyed participating in this week’s Radio Ink Forecast 2016 in New York.  The event was well attended, and the panels informative and engaging.

My panel was entitled Prospects for Radio as an Investment in 2016: Wall Street or Main Street?  Moderated by Drew Marcus of Sugarloaf Rock Capital, the speakers included Brian McNeill, Founder and Managing General Partner of Alta Communications and Jerry Sargent, Middle Market Banking Head at Citizens Bank. Drew provided the Wall Street perspective, I talked deal making/station trading and values, Jerry talked about debt/banks, and Brian brought a private equity point of view.

Not surprisingly, there was a lot of talk about Cumulus and iHeart, specifically their balance sheet problems. My takeaway was that there was still time for Cumulus to resolve their operational issues, and work their way out of trouble.  Not so much for iHeart.

iHeart has a looming series of important bond payment due dates.  So far, they have masterfully been able to kick the can and refinance debt, albeit at much higher interest rates (with the result of a steadily increasing cost-of-capital).  But their bonds are now trading at a deep discount; that does not demonstrate much confidence on the part of the bond holders.

We talked about the impact on the industry if Cumulus and/or iHeart went through restructuring.  I believe that we would suffer through a (hopefully short) period of nuclear winter; station prices would suffer, and the lenders would likely pull back from the business.  But the thaw could get interesting.  If, for example, they decided to become a more CBS-esque type of company, focusing on the top 25 or even top 50 markets, the spinoffs into the hands of entrepreneurs more comfortable (and perhaps more skilled) in operating in small and mid-sized markets could result in a tremendous resurgence for the industry.  I contend that good operators, with healthy balance sheets, would line up to acquire the markets being spun off.

Brian indicated that there is not much love coming from the private equity world, but that family offices, with their more “patient money” approach, are an option.  On the other hand, Jerry is open for business on the debt side. Capital structures of at least 40% equity and 60% debt seemed to be a 
safe target.

Tomorrow, I will post some thoughts on station pricing which I shared with the group.

Wednesday, November 4, 2015

Join us at Radio Ink's Forecast 2016

I will be on a panel called, "Do Investors Still Believe in Radio?"  Please join us in New York on November 17.  Click for details HERE.

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