Friday, April 13, 2012
Brokers sense a return to dealmaking as bid-ask gap narrows.
As buyers, sellers, brokers and bankers head to Las Vegas for the NAB Show, there’s a lot of talk that the deal market has improved since the industry gathered in Chicago. Several eight-figure deals have been announced since the start of the year, but the data shows sentiment has so far outpaced sales contracts. “The big thing is the psychology is changing,” broker Michael Bergner says. Excluding the megadeals of a year ago, he thinks there could be more deals announced this year than in the past four years combined. “People have more interest in looking at deals and there are more deals to look at,” he says. “And the buyer bid-ask has narrowed down to where we’re getting deals.” Several brokers say sellers have indicated they’re more willing to come down on price since the start of the year as companies that have been holding assets for the past several years have decided the time is ripe to make a move. That’s gotten some long-stalled deals to the finish line. Patrick Communications managing partner Greg Guy says buyers have also come up a bit in what they’re willing to offer. “There was a noticeably dramatic difference after the first of the year — it was like somebody flipped the switch,” he says. “It’s been a sprint where it was a long grueling jog for a few years.” Other brokers think there’s yet to be a material change in the sales market. Even though he was the broker on 2012’s biggest sale to date, Star Media Group’s Peter Handy says the market remains tough. “There may be more buyers and sellers talking, but getting a deal across the finish line is just as hard as it was a year ago,” he says. Broker Doug Feber echoes that sentiment, noting, “A lot of the deals that have been announced have been around for a long time.” Brokers say there’s been a “flight to quality” among buyers, especially on AM stations. It’s also been harder to market a station that requires capital improvements. “Anything that would have been perceived as a small bump in the road years ago is now looked at as a reason not to do a deal,” Guy says.
Sales snapshot: so far 2012 has a familiar feel to it. Year-to-year comparisons are overshadowed by two large deals announced early last year: Cumulus Media’s purchase of Citadel Broadcasting and Hubbard Radio’s purchase of 16 Bonneville stations. “Without the two very big deals the results are almost exactly the same,” SNLKagan analyst Volker Moerbitz says. Excluding those two, SNLKagan data indicates the sale of 108 stations was announced in the first quarter worth a total of $83 million. That compares to 99 stations sold during the same period last year worth $80 million. Since a shift in attitude may not instantly lead to signed contracts, whether the sense of action in the marketplace translates into sales may not become clear until later in the year. The biggest deal announced so far in 2012 is this week’s news that CBS Radio is selling its West Palm Beach cluster to Dean Goodman for $50 million. Other big sales include Entercom’s $25 million pickup of Inner City Broadcasting urban AC KBLX-FM, San Francisco (102.9), Connoisseur Media’s $23 million expansion into Long Island through its purchase of Barnstable Broadcasting’s stations, and Journal Broadcast Group’s $11.8 million deal to buy two Tulsa station from Renda Broadcasting. “While these values are lower than what existed in the same markets seven years ago, they are establishing the new valuation metrics for the industry,” Hoffman Schutz Media Capital president Dave Schutz says.
Brokers say the banks are mostly still not open for business. Like a missing third leg of the buying and selling tripod, dealmakers say a continued lack of capital is holding back acquisition-minded broadcasters. “We’re still in the same spot and that spot is generally driven by a lack of bank financing,” says broker Peter Handy. That sentiment is echoed throughout the dealmaking community. But at least one banker senses a turning point. GE Capital media team leader Ray Shu points out many markets are seeing a cyclical rebound. “Radio should directly — and indirectly — benefit from the continued increased spending in political dollars during the 2012 election year,” he says. “As such, we expect lending activity in the sector to rebound in 2012 from the cycle lows.” As a big player in the middle markets, GE Capital plans to go after a piece of that radio lending activity. Two years of revenue growth helps make radio a more attractive investment, but for now broker Michael Bergner says there’s a new formula playing out. “Buyers are pretending there’s going to be no growth and when they do the arithmetic on the deal, if it still works they buy it,” he says. “If we get some top line growth, it’s all gravy for them.” But away from the eight-figure deals brokers say the deal pipeline is clogged with sellers who can’t find buyers with cash to spend. The bid-ask spread between buyers and sellers is the widest in the smallest markets. “The toughest thing is to find a lender on sale worth $2 million or less, Patrick Communications managing partner Greg Guy says. “It’s still very hard for people at those price points because local banks aren’t lending, so there’s a lot of assets that are just sitting there.” Over the past six months two separate financial institutions have explored returning to media lending, but so far both have remained on the sidelines. When lenders and new buyers begin looking at assets, that’s when brokers say they’ll know for sure radio’s deal market is healthy again. “I get the sense this has some momentum going forward,” Guy says. “I don’t think it’s going to be a dramatic shift — but at least the development of a reliable market that everyone is comfortable with.”
