Record Consolidation:Another $5 Billion to Go?

We are only at the halfway point, some industry veterans say, of an unparalleled period of M&A for local TV

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Local television has seen approximately $3 billion worth of stations slated to move to new owners this month alone, and industry pundits suggest there may be as much as $5 billion worth still to shift. After a year-plus of Sinclair and Nexstar gobbling up small- and midsize-market stations, recent blockbuster deals—the Media General-Young Broadcasting merger and Gannett’s pact to acquire Belo—have moved into larger markets and set the stage for more big-ticket deals.

It is “the end of the beginning,” according to John Tupper, owner of station brokerage firm Kepper, Tupper & Co., as the global banks step in after the regional ones made a killing providing capital for the smaller acquisitions. “There’s a lot of pent-up sellers interested,” Tupper says. “There’s not been a liquidity market for their assets in a while.”

For some station owners at a certain stage of life, flush with recent election-spending cash and thoughts turning to estate planning, Tupper says the time might be right to sell.

Larger groups, including Allbritton and Local TV, represent rare opportunities to own quality stations in top 25 markets, and could by themselves approach that estimated $5 billion ceiling. Some observers suspect Gray Television may be next to sell. Multiple sources think Fox may be a buyer again in major markets.

New View of Value

Either way, it’s an unparalleled flurry of activity in local TV. “The financial markets have taken the new view, rightly so, of the value of broadcast stations and their future value,” says Gannett Broadcasting president Dave Lougee.

According to Robin Flynn, senior analyst at SNL Kagan, it is the “early to middle stage” of the consolidation process. Adding to Gannett’s $2.2 billion agreement to acquire Belo (which includes $715 million of existing debt) is Young’s estimated value of $600-$800 million, she says. That leaves another $5 billion-plus to potentially move.

“I think, and I’m not alone in my thinking, there’s a lot more to come,” Flynn says. “The rationale for consolidation is so strong. [The deals are] coming with such regularity and such speed.”

Others think the wave may have crested, though most acknowledge that as the recent two front-page deals were surprises, the future is anything but clear. It may be the “middle to end point” of consolidation, says Mark Fratrik, VP and chief economist at BIA /Kelsey. “I don’t think there will be anything big,” he says. “But I was surprised by Gannett and Belo, and I guess that could happen again.”

Buy or Sell?

If they are not buyers, broadcasters have to at least consider being sellers. For his part, Paul McTear, Raycom Media president and CEO, is considering all options. He says he doesn’t have a clue as to when the consolidation will end, but suggests it may be sooner rather than later. “If it continues, I’d be just as surprised as I was with Belo,” McTear says. “There are just not that many broadcasters left.”

E-mail comments to mmalone@nbmedia.com and follow him on Twitter: @BCMikeMalone