FCC Auction of 144 FM Licenses Garners Muted Early Bidding, as M&A Lags
An FCC auction of 144 FM licenses garnered muted bidding, with 35 percent of the construction permits failing after three rounds Wednesday to get the minimum bid set by the agency. Meanwhile, deals to sell radio stations continue to be fewer than in previous years, and some industry officials said that’s borne out by the auction results. There are some positive signs for AM and FM mergers and acquisitions, with the market for deals for stations generating cash flow picking up, they said. Radio M&A activity has been declining for years, from a height in 1999 of $28.5 billion to transactions in the hundreds of millions of dollars in recent years (CD Aug 30 p1).
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Auction No. 91 had $2.5 million in total net bids on Wednesday afternoon, with 50 construction permits held back by the commission, agency figures showed. Nine permits had bids of more than $100,000, with the highest $333,000 in Lawrence Park, Pa., near Erie. The auction will have four rounds daily until the commission speeds things up, which may happen next week, said wireless lawyer Raymond Quianzon of Fletcher Heald. He estimated about 10 markets are drawing very active bidding, including Daytona Beach Shores and Key Largo in Florida and, in California, Coachella and Twentynine Palms. Daytona Beach Shores had 10 bidders, with a high price of $140,000, commission figures showed. The auction has 37 permits left over from auction 79 because they didn’t sell, the agency has said.
"It’s still early in the game, but it’s interesting that a third of the licenses, nobody has even bothered to bid on,” said Quianzon, who specializes in auctions. “A general understanding of the industry would lead one to believe that this is going to be a lackluster auction.” That may be so, but the auction isn’t indicative of the finances of radio stations generally, said other industry officials. Bidding so far is “no surprise,” because allowing broadcasters to establish a secondary spectrum market would be more efficient, said lawyer Robert Rini of Rini Coran, which represents radio stations. “There are so many stray dogs and cats that are left over from other auctions,” said Rini: “I remain bullish on radio, despite whatever the auction yields."
The values of radio and TV stations have been increasing lately, as shown in recent sales, said broker Frank Kalil. Political ads from the 2010 midterm elections and a slowly improving economy have helped valuations, said Kalil, president of Kalil & Co. “We are having more activity now than we've had in the past two years -- so we're getting deals done,” he said. For broadcasters with the financial wherewithal to “achieve large deals,” the “financing is available, albeit at lower multiples, so you can’t do it at the price you'd like,” Kalil added. For deals of less than $100 million, it’s “tough, because the financing is just not there,” he said.
Share prices of owners of radio stations have fallen, as measured by their multiple of annual cash flow, said analyst James Boyle of Gilford Securities. “Investors in general are still concerned about the gradual, sluggish economic recovery, unemployment and housing woes,” he said. “With much less credit available and with much slower cash flow growth nowadays,” multiples “have compressed quite a bit, or dropped down considerably to reflect lower growth assumptions and less capital availability and high cost” of lending, Boyle said. “Ever since a billboard group noted a somewhat slower-than-expected local ad growth in Q1, it suggested to investors that other media -- like radio groups -- with a substantial reliance on local advertising, may not have much robust upside in the near term.”