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More Broadcast Mergers/Acquisitions Ahead?

‘The data would suggest that we are in for another round of consolidation’

Conditions are ripe for significant mergers and acquisition activity in U.S. radio and TV, according to a report from financial analyst Marci Ryvicker and several colleagues at Wells Fargo Securities.

“While it is tough to say when or if something will actually happen, what we do know is: i) there is an appetite, ii) there are more synergies today than pre-recession, iii) balance sheets are relatively flexible, and iv) free cash flow generation remains robust.” they wrote.

The analysts said merger and acquisition activity tends to follow a cyclical pattern of two or three years of activity, then a similar period without much.

“When looking at the historical data, what is no surprise to us is the deceleration in seller’s multiples, which averaged mid to high teens (and even higher in some years for radio) in the early 2000s and is now high single digits,” they wrote. Should history hold up, “the data would suggest that we are in for another round of consolidation.”

Though radio has already seen activity in the past year, the analysts think consolidation makes a lot of sense “particularly for TV” for a number of reasons. Among companies they follow, they pegged Sinclair and Belo Corp., both TV companies, as having the greatest “M&A capacity.”

They added that diversified media companies like CBS are not likely to be active in broadcast mergers, sticking to opportunistic transactions and growth internationally.