Broadcast financing a chicken and egg proposition

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When it comes to firing up merger and acquisition action, which comes first, Wells Fargo Securities analyst Bishop Cheen asked in the 6th Annual RBR-TVBR Financial Roundtable, the compelling deals or the willingness of bankers to lend? It’s the traditional chicken or egg question.


“The bank market will stimulate the M&A market, no question,” said David Abraham (pictured), Managing Director, DAC Media Capital. “It will be a little bit symbiotic because people will put their toe in the water on the M&A side and see what the bank markets will support and when the find out that the banks will support their transaction it will enable those deals to be executed but I think it will absolutely take the banks to come back first so that structure can be accomplished.”

“And that is happening. You see in the context of the Cumulus-Citadel transaction that buyers are able to get committed financing from banks to make acquisitions happen and those committed financings are a combination in the context of that transaction bank debt and a bridge to what is expected to be high-yield debt,” chimed in banker Kristin Allen, Managing Director, Credit Suisse. She said there’s now the confidence to issue debt in both the bank market and the high-yield market, although that’s really limited so far to large acquisitions.

Picking his own metaphor, Drew Marcus, Managing Partner and Portfolio Manager, Sugarloaf Rock Capital, changed the chicken and egg to dominoes.

“Perhaps the first domino here is confidence in revenue growth. Television – broadcast, cable and local television – had a great 2010 and is off to a good start in 2011. There’s a lot of optimism about the network upfront and you know radio has been up for 14 months in a row.  The last time radio did that was in 1999-2000, so as there’s building confidence in revenue growth that’s encouraging the lenders, which then gives the CEOs the ammunition to go on an M&A hunting expedition,” Marcus said of the slowly developing M&A market for broadcast properties.

The wide-ranging discussion included talk of multiples and what it will take to open the IPO market once again to radio and television companies. You can listen to the entire discussion as part of the most recent issue of Manager’s Business Report. There’s no subscription charge for MBR, but you have to opt-in. If you haven’t done so already, click here.