The recent announcement of the Dickey – Crestview Partners alliance is indeed exciting. God knows the radio business needs it. The last two years have been so depressing and we need a boost. I feared my grandfather’s warning to my father (a 1951 Dartmouth grad with a dream to be a sportscaster) might actually come true – “Son, radio is a dying business.”
The M&A markets are dead. Capital providers have rolled up the welcome mat. One quarter of the advertising dollars are gone. Many station owners are stuck, perilously overleveraged. And if the “owner” is still the broadcaster, he or she is one of the more fortunate. In many cases the broadcaster has become the employee to the real owners – the lenders. Not that this is either good or bad. It is simply a consequence of the times.
When smart investors plan to invest a billion dollars in a business that has been shunned like the plague for the last couple of years that has to perk everyone up – owners, brokers, lenders, investors. But will it be the silver bullet to cure all that ails the radio business today? Hard to say.
There are other savvy, talented broadcast investors out there. They are unburdened by overleveraged legacy investments, and also have open checkbooks at the ready. The bigger hurdle, as I see it, is the persistent gap between buyer and seller expectations.
As a buyer, it’s hard to ignore the sea change in the radio business model and capital markets when valuing an investment. Can this business command the same multiples it did a few years ago? Even if it did, valuations in dollar terms would still be considerably lower because of the drop in revenue and cash flow during the “Great Recession.”
Sellers, on the other hand, have all sorts of agendas. They aren’t eager to part with assets at bargain basement prices and then live on food stamps. Who could blame them? Big corporate owners (or billionaires) can afford to take a loss and move on. Financial owners who have charged off the investment on their books might also be similarly motivated. But not all financial owners are alike. Some are short-term players, some long-term.
Will money and an easy exit stage right be enough to break this buyer/seller valuation logjam? I don’t know. Maybe Messrs. Dickey and Crestview Partners do. I’m sure there will be much to write about after the NAB. And I haven’t even gotten to my question about what the vision is for these billion dollars – another giant radio platform?
Food for thought.
(source: John Brooks was formerly a media banker with Wells Fargo Foothill)