Emmis 375

“Why transition from radio?” That’s one of the questions Emmis execs attempted to answer at its annual shareholders meeting, following the company’s latest radio selloff – the sale of urban AC WBLS-FM and rhythmic CHR “Hot 97” WQHT-FM New York to Standard General. The short answer is that Emmis found it “increasingly difficult to compete” for advertising and digital dollars “without significant scale,” the company said in a presentation to shareholders publicly released over the weekend.

The meeting occurred July 11, the same day as the company’s latest earnings call. One could argue that it’s a chicken vs. egg scenario in that Emmis has been systematically shedding almost all of its radio assets. Now it intends to use the roughly $88 million in net proceeds from the sale of majority stakes in its radio stations in Austin and New York City to invest in non-radio companies with a higher growth profile. “An entrepreneurial culture is difficult to maintain in a slow growth business,” the company told shareholders. “We simply believe our talents are transferrable and we want to be in businesses that are growing.”

It’s a similar tune to one CEO Jeff Smulyan sang during the company’s quarterly earnings call, where the hot topic occupied the entire Q&A portion of the call. Smulyan made it clear on the results call that he’s not interested in acquiring a startup but would rather focus on “probably a couple businesses” with $10 million to $25 million in cash flow and a history of growth. “My sense is they would be several, relatively smaller businesses,” he said.

Importantly, Smulyan said he is interested in companies or industries “where we believe that the skill sets we bring to the table can help enhance that growth.”

During the shareholders meeting, Emmis recapped the asset-shedding sales and their deal multiples. In April 2018, it sold four stations in St. Louis for $60 million in gross proceeds at a multiple of 12-times trailing 12 month station operating income. Later last year, Emmis ceased investments in NextRadio and TagStation, which increased its annual operating income by about $8 million. Then came last month’s agreement to sell its 50.1% controlling interest in its six-station Austin radio cluster to Sinclair Telecable, which currently owns 49.9% of the cluster. The $39.3 million deal was at a 7.5-times multiple of trailing 12 month station operating income. That was followed by the deal to sell WBLS and WQHT for $91.5 million in cash, a $5 million note and 23.72% of the common equity of the new publicly traded company. According to documents filed with the Securities & Exchange Commission, the New York deal was at a 10-times multiple of trailing 12 month station operating income.

Now industry watchers are anxious to see what Emmis buys with the cash. Once the New York and Austin sales close, Emmis says it will be operating at a net loss due to the corporate overhead expenses it will continue to carry to manage its future purchases. The company says it plans to “aggressively identify, pursue, and purchase new businesses with better growth prospects” and that these companies “will become the new operating platform for Emmis.”

“It’s very hard,” Smulyan told the Indiana Business Journal, reflecting on the asset sales. “I think we’ve got some of the best people who’ve ever done radio. But we learned for a lot of reasons that the likelihood of great growth is probably not there.”

Smulyan told IBJ he’s committed to holding on to the company’s Indianapolis assets, which include four radio stations, the dynamic-pricing firm Digonex and Indianapolis Monthly magazine.

And for the future, Smulyan said Emmis, which he founded in 1980, is focused on growth. “We don’t have any illusions that we’re going to take a business that’s growing 5% and make it grow 50%,” he said. “But if we are good, we can find some businesses that are growing 5% and maybe see some things and make it grow 10%.”