Cash 2

The COVID-19 pandemic caused the broadcast deal market to plummet in 2020 to just $1.02 billion worth of transactions, an 87% drop from 2019. But it wasn’t as bad as the Great Recession. Last year’s deal volume was 27% higher than in 2010, when the deal market felt the full impact of the 2008-2010 financial crisis.

“The deal market had been operating in a harsh environment even before the pandemic hit,” says Kagan Research Analyst Volker Moerbitz in a new report. Broadcast cash flow multiples have hovered around 8.5-times for TV and 6.5-times for radio for the last seven years. “With multiples that low, and no indications of change, finding financing had become exceedingly difficult,” Moerbitz says. “As a result, the focus of deal activity shifted to small transactions in small markets.”

The trend toward smaller station sales was more pronounced in the radio market. In 2020, half of all full power radio stations sold – 199 out of 401 – were outside Nielsen-rated markets. That’s up from 39% in the previous three years.

The biggest broadcast transaction of 2020 took place in February, when an investor group led by former Viacom CFO Wade Davis announced a deal to buy a 64% stake in Univision Communications from Sabin Capital Group and other investors. The price of the buyout by Searchlight Capital Partners and ForgeLight was not publicly disclosed. But based on the estimates for Univision's 2020-2021 average cash flow, Kagan values Univision's 58 radio stations at $408.3 million and its 52 TV stations at $3.48 billion. That’s only 52.3% of the station value estimated for the Saban Capital Group buyout in 2006, by Kagan’s estimates.

Since the purchase was for a 64% ownership stake, Kagan considers it a partial transaction and didn’t include the Univision sale in its 2020 numbers. Sixty-four percent of its estimate of Univision's broadcast assets is $2.49 billion. Adding this number to the annual volume, the 2020 broadcast deal market would have closed with a total of $3.51 billion, which would be 45% of 2019’s volume.

The largest pure radio transaction also came in February, when Entercom revealed a $10.75 million cash deal to sell the signal of rock WAAF Boston (107.3) to Educational Media Foundation. The sale spelled the end of WAAF’s nearly 50-year rock format on the frequency, which is licensed to Worcester.

The WAAF sale remained the largest radio transaction of 2020 with a disclosed price until the end of the year. After that it took eight months for another ten-million-dollar radio deal to come along. In October, PM Radio agreed to acquire the license of Asian formatted KZMP-FM Dallas-Ft. Worth from Estrella Media for $10.0 million.

“The sale of KZMP-FM was the largest single radio-station deal since the beginning of the COVID-19 pandemic and an indicator that the deal market had adjusted to new realities and found ways to conduct business under extremely difficult circumstances,” said Moerbitz. “September, October and November registered deal volumes of over $100 million each.”

In addition to a pair of big TV station deals, November brought a large radio station swap. On Nov. 6, Entercom and Urban One said they had agreed to a multi-market station swap that gave Entercom a fifth FM in Philadelphia, along with an additional FM in St. Louis and an AM in Washington, in exchange for trading its Charlotte cluster to Urban One. Kagan estimates each side of that trade being worth $14.0 million, which puts a higher value on this deal than any 2020 radio transaction with a disclosed price. Moerbitz says the deal demonstrated “the ingenuity potential buyers and sellers resort to in a time when financing is hard to come by.”

With the arrival of COVID outbreak in March, when world health official declared it a full-blown pandemic, the deal market came to an almost complete halt. Between March and June, the only notable deal was the sale of three TV stations from Marshall Broadcasting Group to Mission Broadcasting for $49.0 million. Without this transaction, April would have registered a deal volume of only $9.3 million, and the deal volume of March, April, May and June combined would have been lower than that of January.

Interesting footnote from Kagan: Aside from the Univision buyout and the $2.65 billion ION Media Networks sale to EW Scripps Co., only 20 radio and 10 TV stations were sold for cash flow values. “This is the lowest number of cash flow TV stations outside of large consolidation deals sold since 2009,” the report says.