The Buyside

Broadcasting Stations Beckon Buyers

Strategic buyers benefit the most from the upswing in auctions of broadcasting stations

When Gannett Co. Inc. (NYSE: GCI), the largest U.S. newspaper chain, agreed to pay $1.5 billion in cash for television company Belo Corp. (NYSE: BLC) in June, the company made good on a promise to make broadcasting a bigger part of the business than newspapers. The transaction, slated to close at the end of 2013, illustrates the recent upswing in broadcasting M&A deals taking place across the M&A landscape.

Strategic buyers benefit the most, says Eric Greenberg of Paul Hastings LLP. "Because they have an existing asset it allows them to create synergy immediately upon acquisition of a station," he adds. "Private equity gets boxed out."

In the first and second quarters, there were roughly 26 announced and completed deals within the broadcasting sector, according to Thomson Reuters data. That's about 57 percent more than the tally reported for the same time period in 2012. The notable deals include Sinclair Broadcast Group Inc.'s (Nasdaq: SBGI) purchasing of four outlets from Titan Broadcast Management for $115.4 million in June. That was followed up by the $860 million merger of Media General Inc., backed by Warren Buffett and Mario Gabelli, with New Young Broadcasting Holding Co., as well as the combining of Media General Inc. (NYSE: MEG) and New Young Broadcasting Holding Co. Inc.

Volume in the third quarter is pumping up as well. In July, Tribune Co. purchased all of Local TV Holdings LLC's 19 television stations for $2.73 billion. Hunt Valley, Md.-based Sinclair returned for another major buy - Perpetual Corp. and Charleston Television LLC for $985 million. The deal includes NewsChannel 8, a 24-hour news network covering the Washington D.C. area, sold by Allbritton Communications Co.

"We're in the early stages of a very large consolidation period of local TV stations," says John Zieser, chief development officer and general counsel of Meredith Corp. The Des Moines, Iowa, publisher of lifestyle magazines, including Better Homes and Gardens, also owns 13 local broadcast stations and has been an active bidder in many recent auctions. Zieser reports several reasons why broadcasting M&A is attractive. One reason is the significant rise in content fees, in which major players like Comcast Corp. (Nasdaq: CMCSA) and Time Warner Inc. (NYSE: TMX) shell out cash to owners of broadcasting stations in order to get them to carry the signal of their local affiliates. Another is the amount of revenue derived from political elections. Every two years, local affiliates of ABC, NBC and Fox carry an increasing amount of political advertising, especially in battleground states. This makes it a good time to monetize, Zieser adds.

"Multiples have basically gone up from 8.5 times Ebitda to about 10.5 times over the course of 18 months," Zieser says. "You've got a business that has been around for 50 to 60 years, but it's resurging because of these new forms of revenue - it's pretty fascinating."

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