Hartstone at NABOB on the art of the deal

If you don't a thorough understanding of all aspects of a prospective broadcast deal before going to the money people, "You're going to miss the strike zone by a country mile." So said Joel Hartstone of Stonegate Capital at the National Association of Black Owned Broadcasters session of station trading and finance last week (9/10/04). Here are the ducks he feels need to be in their appropriate row.

* Be aware that the investor will have a yield expectation. The borrower must understand this before making an overture.

* All relevant data should be in hand before contacting a lender. Guessing or asking for time for further research will make the borrower appear to be a bad risk, and hence will likely be deal killers.

* The borrower must have a structure for the deal in mind. Even it isn't destined to be the structure in the final analysis, it will provide a critical starting point.

* "Appreciate that you're handcuffed together" with the lender in a deal of this sort. The lendor's fortunes go up and down with the borrower. This isn't a glorified car loan, it's a partnership, and the borrower must be aware of this going in, and treat the lender as such.

* Understand different goals of borrower and lender. The borrower is looking at the long term, while the investor wants to achieve a certain return and then get out. This can be a particular problem in a turnaround, with high rates of growth initially followed by a plateau effect once a station has achieved maturity. The eventual and inevitable break-up between borrower and lender should be planned in advance.

* For a first-time station buyer, Hartstone said what you're really buying is a ticket into the game. Figure on five years to build your station, to the point where you can finance your own second deal. Five years after that, and ten years after your entry into the business, is when you can realistically start to reap your rewards.

RBR observation:
If you want to become a station owner, this is the kind of advice you need to pay attention to. Over the years we've seen many people who know a lot about radio run into a brick wall when they tried to become a station owner - - because they didn't learn how the finances of ownership work before they tried to put together a deal. Worse yet, we've seen some who managed to buy a station without really understanding the financial equation and, as a consequence, saw their dream implode. Don't let that happen to you.