Thursday, October 22, 2009

"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