After several years of drought, there have been a handful of big deals in recent months, first in radio (Hubbard and Cumulus buying) and more recently in television (with Sinclair and Scripps as buyers). Here’s one analyst’s view of what to expect down the road.
“M&A has followed a cyclical pattern,” said Wells Fargo Securities analyst Marci Ryvicker in a research report. “In analyzing historical bouts of M&A, we noticed a cyclical pattern – with 2-3 years of robust activity followed by 2-3 years of ‘calm.’ When looking at the historical data, what is no surprise to us is the deceleration in seller’s multiples, which averaged mid to high teens (and even higher in some years for Radio) in the early 2000’s and is now high single digits. (As an aside, current buyer’s multiples have averaged 6-7x post synergies). Should historical cyclicality hold up, the data would suggest that we are in for another round of consolidation.”
Media consolidation, particularly in television, makes a lot of sense to Ryvicker. She notes some important synergies which didn’t exist before the recession. The biggest factor is retransmission consent fees, which give a big boost to pro forma EBITDA. She also notes that the bigger a TV group owner is, the more leverage it may have with the networks in holding the line on reverse comp. Back to the revenue enhancement side, she notes incremental revenue from digital offerings. She even sees consolidation as playing a role in the spectrum push and pull. we believe that consolidation could help enhance the spectrum discussions that are likely to take place between the TV broadcasters and the FCC,” Ryvicker wrote.
You may be surprised to know which TV group Ryvicker sees as most likely to be a buyer. It’s Sinclair Broadcast Group, despite having already bought the Four Points and Freedom groups for a total of $585 million. She says “hands down” Sinclair has the most debt capacity for acquisitions of the public companies she covers. Ryvicker calculates the debt capacity for Sinclair at slightly over $1 billion, even after the Four Points and Freedom acquisitions. Second is Belo, whose debt capacity is calculated by Ryvicker at $623 million.
RBR-TVBR observation: Reporting on station trading has been a major focus of this publication for nearly 30 years, so we’re ready, willing and able to deal with a pickup in activity!
