Why Was the Radio Volume So Low In 2016?

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On the heels of SNL/Kagan reporting the radio deal volume in 2016 was at its lowest in decades, we turned to a handful of experts who work the deals every day to find out what the reasons were and what we can expect moving forward. Here’s what they had to say…

Larry Patrick, Patrick Communications
Larry Patrick, Patrick Communications

Managing Partner of Patrick Communications Larry Patrick tells Radio Ink part of the problem is radio’s big two. “Wall Street is worried about i-Heart and Cumulus. Until these situations are resolved and some confidence returns from buyers, the pace will remain slow. A new administration in Washington has sparked more enthusiasm among retailers and hopefully the transaction market.”

DEFcom Advisors CEO Doug Ferber says many broadcasters are in “the box,” and they simply need to work the operation and stay the course for now.”They have, by yesterday’s standards, a doug-ferberreasonable debt load which they can still service with today’s cash flow. However, valuation multiples (and in many cases cash flow) have declined so that there is little or no paper equity left in the business. So what is an owner to do? There’s no point in selling now; pricing is very low and likely to remain at these levels indefinitely. Companies can’t de-lever by raising equity because there is no way to achieve an equity return on that investment. They can’t refinance. There are few institutions lending in the middle market now, and in any event, not many lenders today would contemplate new loans at the leverage ratios that many companies currently have in place. And even if such a loan were possible, it would be at higher interest rates. The only course of action is to manage the business, focusing on basics. With the economy and advertising revenues picking up a bit, the key objective is to improve cash flow as much as possible. Over the course of the next few years, some principal will be repaid and cash flow should increase, bringing the debt-to-cash-flow multiple down to a better level. So for the short to middle term we’re experiencing a deal environment in the doldrums, lacking the necessary breeze to fill the sails. A warm wind to accelerate investment and deal activity could come in the form of revenue growth and/or deregulation. On the flip side, a cold ‘blue northern’ might also speed things up via more restructurings and bankruptcies (a few of them potentially large). But for now, what you saw in 2016 is likely to continue through 2017 (and maybe beyond) unless an unplanned catalyst attracts investment capital to the radio industry. Last year, DEFcom Advisors ‘defied gravity’ closing eight deals, mostly smaller than normal, but the result was the best year my company has had financially since its inception in 2009. Go figure, right?”

scott-flick
Scott Flick

Pillsbury Winthrop Shaw Pittman partner Scott Flick tells Radio Ink that while the number of radio deals has been trending downward for a number of years now, it’s interesting 2016 didn’t reverse that trend. “There were few TV deals in 2016 because of the spectrum auction restrictions, which means that there were a lot of broadcast brokers, lenders, and deal lawyers with the time and incentives to make radio deals happen in 2016. The fact that radio deal flow continued to slow despite that indicates it is a structural issue in the industry, and may not change until the biggest players are once again financially able to resume buying and selling stations without hurting their debt ratios. That will free up inventory for all buyers.”

BIA/Kelsey’s Mark Fratrik says there’s a list of reasons 2016 was so slow. “General lack of strong economic growth. Incredible competition for listeners of local radio stations. Incredible competition for advertisers of local radio stations. Concern about the place of radio in the media/advertising landscape. And, owners of radio stations not willing to sell at low prices that make sense for buyers.”

And our friends at Kalil & Company tells us that 2016 was a decent year which would have been even better if they didn’t have to break up clusters and find multiple buyers. “For 2017, look for a modest increase in interest rates but taxes will be lower and the economy will be robust and, with radio listening at an all-time high, sales are sure to follow.”

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