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A New Equilibrium for Station Sales

2/23/2007 07:00:00 PM Eastern



Author Information
Krasnow is an attorney who chairs the Communications & Information Technology Group at Washington-based Garvey Schubert Barer.

What will be the cash-flow multiples for buying media properties in
2007? The answers will start coming when we see prices paid for the purchase of
Clear Channel’s 448 smaller-market radio stations and its entire
42-station television group.

Those transactions will likely set the new price equilibrium.

There will be enough data for buyers to determine the cash-flow
multiples. Then the station-trading market, like water, will find its lowest
level and settle somewhere.

This year, private-equity firms, rather than group media companies, will
continue to drive blockbuster media deals. They emerged as conspicuous buyers
of media properties with the buyouts of Clear Channel Communications and
Univision Communications and the purchase of the New York Times and CBS
television stations.

Simply put, group media companies are not as well-positioned as
private-equity firms to acquire the large stack of radio and TV stations
expected to be peddled in 2007.

Many non-public groups are overleveraged and cash poor. Others are
downsizing and in the process of disposing non-essential properties. And
publicly traded broadcast groups are reluctant to invest in mega-deals because
of depressed stock prices. Wall Street’s negative view of broadcasting,
due to slow growth, coupled with impatient investors, has opened the doors for
private-equity firms.

By contrast, those firms are cash rich, with access to huge pools of
money from pension funds and wealthy individuals. Despite the pessimistic
forecasts for newspapers and broadcast stations, private investors are
attracted to media properties because they generate lots of cash and enjoy
fairly predictable cash flows and relatively low capital expenditure needs.

Private-equity firms want big deals where they can invest large sums.
Most are seeking returns in the range of 20%-30% over a five- to seven-year
period.

So watch that investing segment in 2007. Also watch for non-publicly
traded group owners to make acquisitions in midsize and smaller markets and for
publicly traded groups to rid themselves of even more non-core assets.

This will be a different kind of year for station trading as the media
world readjusts its strategies.



Author Information
Krasnow is an attorney who chairs the Communications & Information Technology Group at Washington-based Garvey Schubert Barer.

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