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The NAB's big show kicks off next week in Las Vegas, and while it is now dominated by Television and New Media, there will be radio executives in the massive crowd, roaming the Las Vegas convention center. Many of them will be hosting or attending private meetings in some of the nicest hotels in the city. Some will be buyers. Some will be sellers. The question is, do they see eye to eye on price. Brokers will be ready to match their willing sellers with those looking to grow, who have the financial backing. In the April 7 NAB issue of Radio Ink Magazine, we spoke to the most respected brokers in the business today to get their perspective on the level of deal activity they see in the marketplace, multiples in 2014 and who the real players are in the market. One of those brokers is Doug Ferber, the CEO/CCO of DEFcom Advisors in Dallas. Here is our interview with Ferber that subscribers will see on Monday.
Radio Ink: In terms of number of deals, were you surprised or was it what you expected over the last twelve months?
Ferber: I wasn?t really surprised. I thought by now there would be more stuff sold. Right after the crash, if you talked to the bankers that were worried about their loans during 2009 and 2010 they said not much was going to happen until 2013. Everything is still kind of being pushed back. Business is what it is, where some of these companies are slow or no growth
Radio Ink: Are you getting a lot of tire kicking or people that want to do business?
Ferber: Well the buyers that are out there are serious, but they are serious with low prices. I wouldn?t say tire kickers because they?re real. There?s an element out there that still believes in the business. But there?s not the piles of money out there from private equity that there was a couple of years ago, nothing to really prop up pricing. It goes back to economics 101. The more dollars chasing fewer things the higher the prices go. There?s not a lot of dollars chasing the radio deals that are out there. Your pool of buyers is pretty shallow.
Radio Ink: Who is the most active?
Ferber: Larry Wilson, Jeff Warshaw and Summit Media. The list is pretty short. When guys like me talk to sellers, they look at the list and say, ?is that it?? The response is yes. In a climate like this a lot of times, the first group that?s really serious is probably the best prospect. Whereas when times were really good, you could put together some really good auctions. You?d have 5-10 really good prospects that bid. You?d get 5-10 guys submitting letters of intent. You?d put them on the phone and you?d see what comes out. You were able to do multiple rounds. The buyers in today?s market know there aren?t many guys out there. It depends on the deal, but Larry and Jeff have got the ability to close on almost anything.
Radio Ink What are the multiples the way you are seeing them?
Ferber: Six and change. In 2003 guys were buying at 12X. Today, and this has held up pretty well, anything that was purchased pre-crash, and really there wasn?t any activity in 06-07, is now worth about 25% of what you paid for it.
Radio Ink: Do they ever get out of that?
Ferber: Let?s use Clear Channels as an example. They?ve been able to restructure their debt options a couple of times. Clear Channel, and I haven?t seen the numbers for a while, has about 20 Billion in debt and around a Billion five or so in cash flow. That billion five services their debt and not much more. But every time they kick the can down the road, it gets more expensive. In some cases, and I think Entercom might be a good example of this, they have more cash flow then their debt service, so they?ve been able to pay their debt and cut into principal. If the industry can do more of that, it would be a financially healthier business in a few years. But I don?t know what we?re going to see with Clear Channel because that?s going to be a very interesting thing in 2016, they have a very big hurdle to jump. My guess is the banks will work with them because they don?t want to see a 20 billion bankruptcy. I can?t imagine anyone would want that.
Radio Ink: Is there money out there to buy radio stations?
Ferber: When you talk to the banks that go to the conventions they say they are doing deals. But it has to be $50 million of loan value and all the moons have to line up. It?s got to be perfect. So that doesn?t leave really any available financing for the lower market. Other than Summit Media, I don?t know of any other loan generated on any kind of scale other than that.
Radio Ink: If someone came to you and said he wanted to be an owner and purchase several radio stations, is now the right time?
Ferber: I would be a buyer. I think the business is still a great business. It?s resetting. We?re in a time of new media, change, the landscape is different. But, I think what we?re finding is that if radio can keep up with things technologically, getting in smart phones, etc, that?s really going to be key in the long run because you?ve got to be able to receive a radio on the same platform as the Internet. Let?s assume that happens, radio will be very healthy for a long time.
Radio Ink: What is your prospective as to why Radio can?t grow revenue?
Ferber: I?m not an operations guy, so maybe that would be a better question for Jeff Warshaw or Larry Wilson or somebody but, I don?t think the industry knows how to sell advertising in a digital world yet. And, in some cases, there isn?t enough digital inventory to really sell on any kind of scale. So I think local radio stations only have, basically what they do is create a platform of relationship type opportunities for inventory and they sell it when they get different types of proposals. They only have a limited amount on their own site and on the site they have relationships and are able to sell. Whereas, Pandora has a national platform, they have several 10?s of millions of people using the product.
So on a local level it?s tough. There was RAB research that came out that showed that either the GM?s think selling digital gets in the way of selling traditional advertising and selling traditional takes away time from selling digital. Salespeople aren?t trained well enough to sell digital to begin with which goes back to the fact that we don?t train our people. Why? Because we don?t have the money, we?re using it all to pay down debt or service debt.
Radio Ink: What do you think we?re going to see in the next twelve months as far as stations being bought and sold?
Ferber: Well I don?t think it?s going to be much different from what you see now. From a big deal standpoint, nothing?s going to happen for a while because Clear Channel has their 2016 hurdle, which they probably will. Cumulus won?t do anything for a while. The exit, for Clear Channel will be to go public or to sell public to clear some of its debt. The exit for some of the consolidating private equity guys, if they want to get out, is to go public, or merge and become bigger. I don?t think it?s going to be much different than it is right now.
Reach out to Doug Ferber at doug@defcomadvisors.com
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