Frequently Asked Questions
Consider attending the NAB Radio Show. You might also take a look at the books in the NAB Store. Refer also to this white paper. George Reed addresses first-time-buyers on occasion in this blog, so you may want to consider subscribing. You can check out a post HERE ("Buying Your First Station") from a few years ago which is still relevant today.
How do I arrange financing to buy a radio station, TV station, or tower?
Download a copy of "Financing 101" HERE (registration required).
Unless you have a gold-plated resume with a solid management track record, you are probably not going to get the attention of institutional private equity investors. Your best bet to raise equity may be “angel” investors.
Know the difference between debt and equity. Debt is a loan, usually secured by assets and often with personal guarantees. The money is less expensive than equity. Pricing is generally based on a negotiated number of basis points over LIBOR or the Prime Rate. Terms are usually five to seven years. Banks generally preferred making loans greater than $10 million, though "home town" banks sometimes look at smaller deals. SBA guaranteed loans may be an option. But documentation and red tape make them cumbersome.
Equity is ownership. Equity is riskier than debt, so equity investors expect a higher return on their money. In the event of a liquidation, the debt holders generally get their money first; anything left over (sometimes nothing) goes to the equity holders. Pricing reflects this inherent risk. Most equity wants to “cash in” within five years.
Seller financing is sometimes an option. Typically seen most often in smaller deals, the seller functions as the bank. The buyer puts up a down payment (which must be enough for the seller to pay off his lender if there is one) and gives the seller a note for the balance. Terms are negotiable.
Media Services Group's Providence office is experienced in consulting clients on sourcing the capital markets.
We only sell radio stations, television stations, wireless towers, and “new media” businesses.
Broadcast Cash Flow (“BCF”) is operating income, excluding interest, depreciation, amortization, taxes, and extraordinary items. Essentially it is the cash “left over” to service debt, pay for capital expenditures, pay taxes, or return to the owner(s).
Interest, depreciation, amortization, and taxes should be added back to operating profit to determine BCF.
Buyers and sellers often differ on what additional expenses may be added back to BCF. Usually they are 1) one-time-only expenses not normally seen in the ordinary course and 2) owner-related charges which a new buyer would not expect to incur.
Only occasionally. Like real estate brokers, media brokers tend to work for the sellers. Media Services Group represents sellers on an “exclusive right to sell” basis in most cases.
Look for integrity, honesty, discretion, and experience. Choose a professional who has completed a lot of deals. Refer to “Hiring a Media Broker” for an in-depth discussion.
Avoid brokers who promise a purchase price which defies logic. Many potential sale processes have gone awry when the seller hires a broker who promises a “sky high” price after ignoring broker prospects who presented honest expectations.
Whether or not you choose Media Services Group, it is a good idea to work with a firm belonging to the National Association of Media Brokers (NAMB).
Get referrals. And look for an attorney with extensive experience with station transactions. Media Services Group is happy to provide you a list of FCC attorneys with a track record of completing deals.
The Federal Communications Bar Association (FCBA) is a volunteer organization of FCC attorneys. A directory of members is available from the FCBA.
It pays to get your house in order. All buyers will need to review certain key documents at some point in the sale process. They tend to fall in these general categories:
Compile a list of all station contracts and leases (including tower leases, programming and talent agreements, maintenance, ratings, software, etc.). Include start and end dates, monthly costs, and cancelation terms
Financial statements play a key role in the sale process; they are the foundation supporting the value of the business. They must be accurate and comprehensive. Prepare a three year history of Income Statements. If non-operating expenses are contained in the expense line items, they should be identified for each year.
Summarize your real estate holdings in a spreadsheet (use, acreage, location, and property tax). Locate your most recent property tax bill and surveys.
Prepare an update employee list, including job title and compensation.
Review your Public File to ensure full FCC compliance.
There are several valid reasons. The trading multiples on tower cash flow are significantly higher than the BCF multiples for radio and TV stations. Selling your tower allows you to monetize a valuable asset without hindering your station operation. Many owners use the funds to retire debt. It also shifts to tower upkeep, expense and burden from the broadcaster to a tower company. Since a tower sale does not require FCC approval, cash can be raised quickly.
If your TV station is located in the top 35 DMA’s, there is a good chance that the “stick” value of your property has increased. New risk capital has been invested in TV stations with the expected payoff to come from spectrum auction proceeds.
MSG uses a password-protected, online, due diligence room. You will be provided with a username and password after signing the appropriate NDA. ALL OF OUR TRANSACTIONS ARE CONFIDENTIAL unless notified to the contrary. No one at the client or station level is to be contacted without permission. Each site typically contains a Descriptive Memorandum as well as more detailed information on real estate, financial information, employees, etc.
Often, preparing the due diligence information prior to the marketing of the station(s) is one of the most time-consuming steps of a sale.
Most station marketing agreements with media brokers call for a duration of six to eighteen months, with twelve months being typical.
Time on the market varies. Like real estate, stations that are priced more closely to their Fair Market Value tend to sell the quickest.
The FCC approval process generally takes 60-90 days, with the Staff approval becoming “final” in an additional 40 days. Any objections can delay the process.
“Stick” value refers to the value of the station absent any revenue or cash flow. Think “franchise value” of the facility. It is often calculated by the population covered by the station’s signal. We typically use the 60 dBu contour for FM stations, and the 2.0 mVm daytime contour for the AM facilities.