Recent Media M&A Shows Debt Markets Strong, Business Good, Executives Say
A series of larger-than-normal transactions involving broadcast and cable assets reveal a healthy market for raising debt and some faith that the media sector is healthy and profitable, said executives we spoke to Thursday. The last few days have seen deals disclosed involving media assets valued at more than $8 billion. They included several transactions that involved the former Clear Channel TV station group, Atlantic Broadband’s acquisition by a Canadian cable operator and Suddenlink’s $6.6 billion acquisition by BC Partners and CCP Investment Board.
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"It’s definitely the strength of the debt markets that’s driving this activity,” said Gillis Cashman, managing partner at venture capital firm M/C Partners and chairman of cable operator Baja Broadband. “Cable is a very consolidated industry, so it’s unique to see deals of this size, especially on the same day. But there are still a number of smaller regional guys out there, and this will probably spur some activity as well."
Multiples are high -- the $6.6 billion price for Suddenlink represents a valuation of 8.6 times its estimated 2012 cash flow, the company said. Not all smaller operators are interested in selling out. “It’s always interesting, as an independent operator, to go back to my income statement and say ‘What’s my cash flow times eight?'” said Bob Gessner, president of Massillon Cable, and vice chairman of the American Cable Association. “But we're having a good time, we're profitable, we provide great jobs for our employees and our community appreciates that. I'm not going to get that by swapping stock with Time Warner or Comcast,” he said. “I hope, and I think, that there are other people who feel that way."
Valuations may vary from company to company, said Levi Maaia, vice present of Full Channel TV, a cable operator in Rhode Island with several thousand subscribers. “The days of running a formula are sort of over,” he said. “Each cable company looks different than its cousin.” Each of those “systems look very different, their expenses are different, their technology offerings are different,” Maaia said. “Trying to lump them all in and say ‘well they're all cable operators,’ probably isn’t the wisest move financially."
The deals also show the value of cable systems, particularly in regions where there’s less competition, Cashman said. “The video product has been under a lot of pressure, and content costs continue to go up,” he said. “But going forward if you do have that unique broadband pipe into the home, I see that opportunity on the high speed data side … far outweighing the risks on the video side,” when combined with the opportunity to sell more products to small and medium-sized businesses, he said.
Beyond the cable transactions, a series of TV station deals were announced Thursday, primarily involving the former Clear Channel TV group now operated by Newport TV. Sinclair agreed to buy six of Newport’s stations for about $412.5 million, the buyer said. It expects to finance the deal with cash on hand and through a bank loan, or issuing bonds, it said. “The Newport Acquisition is consistent with our focus on adding ‘big four’ affiliates in mid-sized markets and strengthening our in-market position,” said Sinclair CEO David Smith. Sinclair agreed to buy Bay TV, the owner of WTTA-TV Tampa Bay, Fla., for $40 million. It agreed to sell KMYS-TV San Antonio and WSTR-TV Cincinnati to Deerfield Media, subject to Fox TV Stations’ purchase option on WSTR-TV, Sinclair said.
Nexstar and Mission Broadcasting said separately they raised $645 million to fund their purchase of 12 Newport stations and refinance some debt. About $285.5 million of the financing will pay for the stations and Newport’s Inergize Digital business. “The Newport transaction is a transformational event for Nexstar,” its CEO Perry Sook said. “The acquisition significantly expands our revenue and operating base with stations where we can quickly apply our operating and management disciplines to meaningfully improve their performance.”