Recent Deals Spark Interest in TV Stations

Sep 5, 2005  •  Post A Comment

Two recent station group deals could perk up television sales activity as would-be sellers who had been sitting on the fence look to strike while the proverbial iron is hot, a number of industry experts said.

The two separate deals struck late last month suddenly put the spotlight on a sector that has been slumbering in recent months and has led some to believe that other deals could follow.

Emmis Communications, which in May announced that it was getting out of the television-station business, on Aug. 22 announced that it agreed to sell nine of its 16 TV stations in a three-way $681 million deal with Gray Television, Journal Communications and LIN TV. Then on Aug. 26, Raycom Media announced it will buy the assets, including 15 network-affiliated television stations, of Liberty Corp. for $987 million.

While the Emmis deal was one of the most closely watched sales processes in recent memory, with a broad range of potential suitors lining up to look at the stations put on the block, the Raycom-Liberty deal caught many by surprise and, according to several sources, spurred at least a few would-be sellers to think about whether they should jump on this particular wave.

Other companies mentioned as potential sellers are Acme Communications, which owns nine stations in medium-size markets, and Equity Broadcast Partners, an owner of a number of small-market stations. Emmis still has six more stations to sell, most of which are in larger markets and could attract buyers such as Post-Newsweek Stations and Hearst-Argyle Television.

“Without a doubt, the dust will be swept off a variety of deal books [and they will be] recirculated, given the quick progress and high multiples that Emmis and Liberty received,” said Lee Westerfield, a broadcast analyst at Harris Nesbitt Gerard.

Indeed, the market has seen a number of TV station sales completed at prices that would seem to indicate that the so-called bid-ask spread that had been blamed for a lack of station-buying activity in fact does not exist. Television stations are bought and sold based on multiples of a station’s annual cash flow. For years, analysts said buyers were interested in paying multiples that topped in high single digits, while sellers were interested only in offers that pegged multiples in the mid-teens. That gap led many potential buyers and sellers to sit on their hands waiting for relief.

Matters were exacerbated further by a murky regulatory picture, which has left several important station ownership rules in limbo, including the legality of duopolies in some markets as well as the ability of a company to own newspapers and television stations in a single market.

However, in the past few months a handful of deals have been completed at healthy multiples, leading some observers to believe the market isn’t as dormant as many thought. One example is Viacom’s $285 million purchase of CBS affiliate KOVR-TV in Sacramento, Calif., from Sinclair Broadcast Group. That station sold at a multiple that surprised many in the industry at the time but has since been seen as a sound move given Viacom’s opportunity to create a duopoly in the market with the UPN affiliate it already owned there.

Now come the Emmis and Liberty deals, which, though they feature some duopoly opportunities, appear to signal something larger.

“A television station is still a valuable asset if bought by a smart broadcaster,” a former television station owner said. He noted that TV stations remain the best way to connect with local viewers and added that many broadcasters are exploring alternative revenue streams, such as launching local cable channels, delivering news and weather content to wireless devices and even launching Web site initiatives to attract advertisers who typically have not done business with television stations.