Local TV

Station M&A: Wait Till Next Year

Business may look better, but great divide still exists between buyers and sellers 4/12/2010 12:01:00 AM Eastern
Perry SookBy all accounts, local television
is robust once again. Automotive
advertising is riding high,
retransmission consent is a
consistently bankable revenue
source, and the Supreme Court has made
it easier for political candidates to flood
stations’ air with their message, and their

If business is so bullish, one might assume
that the type of sanguine mergers
and acquisitions (M&A) seen in the prerecession
recent past, such as the three
stations Raycom grabbed from Lincoln
Financial for almost $600 million late
in 2007, will start picking up again. But
such an assumption appears to be wrong,
according to many industry insiders.

While deal-makers are typically loath
to show their hand, several station brokers
and group chiefs suggest that the
deal market will continue to be whisperquiet
for the foreseeable future, as no one
can seem to agree on what TV stations
are worth anymore. The industry watchers
were unanimous in mentioning the
considerable gap that remains between
those looking to acquire and those looking
to offload.

“There’s a divide between buyers and
sellers still,” says News-Press & Gazette
President David Bradley. “A lot of sellers
want to see how this year comes together
before considering deals.”

For the first time in years, station executives
are eager to report earnings that don’t
begin with negative numbers. Bellwether
broadcaster LIN TV, for one, predicted a
23% revenue increase for the first quarter,
on the strength of a 54% leap in automotive
advertising. Stations are increasing
advertiser inventory and community reach
through multicast channels and mobile,
and retrans cash is growing considerably.
Gray TV, for one, reported last week that
retrans revenue was up 346% in the fourth
quarter of 2009.

Cash flow continues to make broadcasting
an attractive business for many
private equity firms that dominated the
acquisitions market before the recession.
“Everyone’s looking for a deal,” says Kalil
& Co. President Frank Kalil. “They all
know that broadcasting is a great industry
with money to be made.”

But it’s not without considerable risk,
as groups in Chapter 11 like Tribune,
Freedom and Young Broadcasting—not
to mention PE firms that were humbled
by short-sighted station deals in recent
years—can attest. Mix in strained network-
affiliate relations and the FCC’s
hunger for broadcast spectrum, and it’s
not hard to see why no clear station valuations
are emerging.

The investment banking firm M.C.
Alcamo & Co. valued the six pure-play,
publicly traded broadcasters, including
Fisher and Nexstar, at a whopping 13.7
times average multiple. Earlier this year,
Alcamo valued 14 non-pure-play broadcasters,
several laden with newspaper
holdings, at an average 10.3 X. While
those valuations are well off from what
stations sold for before the recession,
most set the bar even lower these days.

While valuations, of course, vary
greatly from station to station, an informal
poll of several broadcasting veterans
set the average at 8-10 X. “It might be a
10 or 11 if it’s a good fit, but most would
be 9 or 10 tops,” says one group chief.
“You’re not going back to 15 or 16.”

That’s due in large part to over-leveraged
station groups, as well as lenders—some
of which committed “career killer” creditextending
missteps in recent years, in one
broker’s words—rethinking their lending
practices. Patrick Communications Managing
Partner Larry Patrick says a $100 million
deal in the recent past used to see the
lender put up $70 million to $80 million.
Now, the buyer has to put up that much.
“It’s the reverse now,” he says. “You have
to put up so much equity.”

Still, bargains are out there, itchy private
equity firms are sitting on cash, and everyone’s
at least keeping their eyes wide open
for a good fit. Schurz Senior VP of Broadcasting
Marci Burdick says her group favors
strong news outlets in smaller markets. “We
like big fish in small ponds,” she says. “The
medium markets tend to be more resistant
to strong ebbs and flows in the economy.”

Telemundo is eager to capitalize on the
wildfire Hispanic growth in the U.S. “If
we see the right station in the right market,
we will acquire it,” says President Don

The groups that took the biggest
lumps in the recession are, not surprisingly,
getting the most attention from the
tire-kickers. “Most of the conversations
that I am involved in or aware of involve
new private equity sponsors looking to
acquire companies that are either in or
just out of a restructuring process,” says
Nexstar Chairman/President/CEO Perry
Sook. “I don’t think you will see much
activity from companies with legacy capital
structures in this business just yet.”

But once that first deal lands, many
believe some blockbusters will, at long
last, follow. “More and more people are
sticking their heads out of the hole and
looking to get something done,” Kalil
says. “There’s smoke—we just haven’t
seen the flames yet.”


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