Andy Salter of Oaktree Capital excited the Dickstein Shapiro Broadcast Financing session opening the NAB Radio Show in Austin as a rare contrarian out to acquire radio assets in this depressed market. The bankers on his panel were more somber as their firms assess what their exposure is to the Lehman Brothers bankruptcy. They also predicted that the next big deal to get done in radio, whenever that may be, will be done at a single digit multiple.
With radio stocks down sharply this year and private market values approaching 1992 levels, Drew Marcus, Vice Chairman of the Media & Telecom Group at Deutsche Bank Securities, opened the day by assuring the audience that brighter days are ahead for broadcasters who are able to weather the current storm. But, he warned, “this storm is going to get a little bit nasty.”
As a whole, the public radio companies are overleveraged at an average six times EBITDA, while the current lending multiple is 5.5 times at best. So, the decline in radio revenues is a real threat. “If EBITDA would lose another 20% you would potentially have a lot of groups in bankruptcy,” Marcus warned. His advice for radio groups was to try to delever and not to buy back their own stock. What the industry needs now, he said, is optimization, not more consolidation.
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There haven’t been many big deals of late in radio, with both equity and debt financing tough to come buy. Marcus noted that the last deal over $100 million was at a 13 multiple. He expects that the next time we see a deal of that size it will be at a single digit multiple – throwing out eight times as a possibility.
“The proper assessment of value is very fluid right now,” noted James Kuster, Managing Director, RBS Greenwich Capital.
His firm is still lending money, insisted Garret Komjathy, Managing Director-Originations, GE Commercial Finance, but deal flow is just a trickle. “The [pricing] gap between buyers and sellers is still too wide,” he said.
Bruce Levy, Managing Director, Media & Communications Investment Banking, Wachovia Securities, said of the recent financial turmoil with Lehman in bankruptcy and the US Government rescuing AIG, the question now is which shoe will be the next to fall. So the financial markets haven’t singled out broadcasting for the doghouse. Rather, it’s a flight to quality by most institutions which is making it hard for all sorts of businesses to raise capital.
Charles Dreifus, Managing Director, CIT Communications, Media & Entertainment Finance, explained that his firm is no longer looking at lending a specific multiple for a radio deal, but rather limiting its position to 40-55% of the total capitalization, meaning that buyers have to have more equity in the deal.
Amidst all that gloom and doom, Salter’s optimism stood out and made him seem like a rock star as broadcasters lined up – not for his autograph, but to exchange business cards.
“We’re taking a contrarian view. You don’t see a lot of private equity firms lining up to buy radio,” Salter said. But his company has bought 120 stations in the last 18 months. It is the backer of newly launched GAP Broadcasting and GAP West. It is also an investor in Liberman Broadcasting,
What’s attracted Oaktree to radio is that local radio stations have real brands. “I think that brand can translate to the digital medium,” Salter said. Radio has unique content that can be leveraged online and a radio station can serve as a massive loud speaker to drive people online and onto mobile phones. He also noted that radio has “the most creative people” who can design multi-media offerings that will engage audiences and drive revenues.
Why is Salter such an optimist? View our exclusive interview in the Media Center on RBR.com.