We had been hearing discussion of an eight times cash flow multiple for major market properties for at least a year now. But Wall Street seemed to be shocked last Wednesday (1/19) when a major deal actually got done at that level. The sale of 17 stations by Bonneville International to Hubbard Broadcasting for $505 million has clearly set a new standard for potential transactions.
To be sure, some deals did get done during the recession at even lower multiples – but those were for properties in need for some major refurbishing. The stations that Bonneville is parting with in four markets – Chicago, Washington, DC, St. Louis and Cincinnati – are strong, cash-flowing operations with good ratings in established formats.
Think back a decade or so. From the passage of the 1996 Telecom act through at least 2000 an 8X deal would have applied to a rated small market station – and not a market leader at that. During the consolidation trading frenzy multiples for desirable major market properties where there were competing bidders sometimes pushed into the 20s. Pretty much any large market FM with full market coverage could command a multiple in the teens.
What would a 20 multiple be on the Bonneville-Hubbard deal? Try one and a quarter billion. But those days are gone and the Church of Jesus Christ of Latter Day Saints, the non-profit which owns for-profit Bonneville, figures it has better uses for a half billion bucks than holding onto these radio stations.
What remains to be seen is whether the bid-ask gap that has prevented most dealmaking from taking place the past few years will be narrowed now that a major deal has taken place between a willing seller and a willing buyer. Brokers no doubt hope this will be a dose of reality for owners who’d like to sell, but have been unwilling to take what appear to be stingy offers.
As noted, Wall Street reacted harshly to news of the 8X deal, sending every radio stock lower – and their TV brothers as well. The overall market was lower that day, but how often do you see every single stock in a sector move the same direction – in this case, down?
Emmis Communications was hardest hit, since it has been trying for some time to sell one or more of its stations in New York and/or Chicago to put cash in its coffers before it hits a loan covenant wall in September. The Bonneville-Hubbard deal has certainly lowered investors’ expectations of what sort of price Emmis will be able to obtain.
Will station inventory loosen up now that the trading multiple bar has been re-set? Will owners who would like to sell, but don’t absolutely have to, swallow hard and accept the new 8X reality?
And don’t forget, someone has to finance these deals, even at historically low prices. The Hubbard family has plenty of wealth to back up borrowing for expansion, so Morgan Stanley and Goldman Sachs were happy to lend to them. Most other would-be buyers don’t have that sort of credit rating.
What do you think will happen? The current RBR-TVBR poll asks whether this big deal will launch a new round of station sales. Go to RBR.com to cast your vote.
RBR-TVBR observation: There is a deal on the table. Will the Bonneville-Hubbard transaction cause the directors of Citadel Broadcasting to re-examine their rejection of Lew Dickey’s 8X offer?
RBR-TVBR note: ‘Citadel board slammed by New York Times’
The vulture capital firms who bought Citadel’s debt on the cheap as it headed into Chapter 11 want profits sooner, not later.