Radio One sees Reach Media growing EBITDA 20% each year
After announcing a deal yesterday to acquire a controlling 51% stake in Tom Joyner's Reach Media for 56.1 million bucks, Radio One is expecting big things from its new network/Internet arm. Reach expects to report fiscal (calendar) 2005 revenue of approximately 50 million and EBITDA of approximately 12.5 million, thus making Radio One's effective purchase price less than nine times 2005 expected EBITDA. But then, Reach expects EBITDA to increase at a compound annual growth rate of approximately 20% over the next five years, based on its current business model.
Reach was founded two years ago by Joyner, (Chairman) and CEO David Kantor, to operate the Tom Joyner Morning Show and its related businesses. They are taking half of their payment in Radio One stock, giving them a stake in building the entire company, not just Reach. Radio One said it will consolidate the financial results of Reach for reporting purposes. Joyner and Kantor will continue to own significant stakes in Reach. They each signed a new 10-year employment agreement with Reach. The deal is expected to close in January. In conjunction with the closing of this acquisition, Radio One will look to syndicate the Tom Joyner Morning Show on stations it owns in major markets, in addition to the 15 stations it O&Os which currently syndicate the show.
ABC Radio Networks previously syndicated Joyner, but after Reach was formed it lost that role. ABCRN, however, continues representing Reach for ad sales through 2009. ABCRN will also continue to be a Reach Media shareholder after this deal closes - - like all other previous investors, it will be sold pro rata. If you owned 100 shares before, you own 49 now. ABCRN was a 9.5% shareholder. They will be a 4.5% shareholder after closing.
Joyner's show reaches over eight million people weekly on 115 affiliates. Reach also operates the Tom Joyner Sky Show, the Tom Joyner Family Reunion and various other special event-related businesses. Additionally, Reach operates one of the leading African-American targeted Internet destinations, blackamericaweb.com (800,000 registered users daily) and recently developed a Tom Joyner television show in conjunction with TV One.
Said Radio One CEO Alfred Liggins in yesterday's conference call: "You will have satellite radios in your car, and you cannot listen to two mediums at the same time. So we have to make sure we continue to be as competitive as possible. Bringing more content into the Radio One fold was the primary reason that we did this deal. We feel that we can help them build their platform in the Internet and more syndication, and in developing and exploring some of the ideas and some of the talent and characters that they already have. And we feel they can help us become even more of a national platform - - get us some national advertisers that we would not heretofore be able to get to."
Specifically, Joyner's/Kantor's ability to bring Procter & Gamble, Southwest Airlines, Bank of America, Home Depot, some pharma companies and other advertisers onboard.
Kantor tells RBR: "The thing is, Tom is a personality that's national. And for a lot of these national advertisers, that's what they want. They don't want to couple together 20 individual personalities. They'd much rather have one they can affiliate completely with. One of the things were going to be working on is to tie in Radio One markets into things we're doing. Most of these national companies are multi-tiered. They do marketing nationally, regionally and locally. So the goal is to work with them and work with Radio One and come up with something that's even bigger for P&G or Southwest Airlines - - something that works for everyone."
He adds, it will be nice to stop bumping heads with Radio One in the marketplace: "I'd much rather see them selling against somebody else, which is something I never liked to do anyway. I'd much rather be selling with them, especially when we're trying to capture the whole market. And [now] we are the whole market - - if you look out there, there really aren't any other multi-platform media companies geared toward the African-American market."
Liggins stressed the deal is also going to help Radio One tremendously with its cable outlet TV One: "Tom's Sky Show is now regularly aired on the net. "And I believe there is a lot more we can do to exploit Tom's talent on television, and I think there's a lot more Tom can do in getting the word out about getting TV One more subscribers."
And here's a twist you don't hear very often: Liggins said one benefit of the deal is guaranteeing that Tom Joyner won't follow Howard Stern to satellite radio. Listen In:
Look for even more out of the deal. Said Liggins: "David Kantor is one of the most experienced and respected media executives in America and we are honored to have him become a part of the Radio One team. David's expertise in the network and syndication businesses, in particular, will be invaluable as we potentially look to expand further Radio One's syndication of some of our existing personalities such as Russ Parr and Steve Harvey. I am excited about the myriad ways we will be able to enhance value for our shareholders in the future through this amazing Urban media vehicle we are creating."
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