“In recent years, radio has suffered from a 'leverage hangover,'" said Robin Flynn, senior analyst at SNL Kagan. "Back in 2002, equity made up, on average, 76% of total market cap. However, that flipped in 2008, with 73% of total cap representing debt obligations.”
A new SNL Kagan study reveals a huge decline in deal dollar volume in 2008, a trend expected to persist in 2009. Radio station sales dropped significantly from $2.2 billion in 2007 to $932 million in 2008, with the average price per station also falling from $2.9 million to $1.6 million.
SNL Kagan anticipates more forced sales, Chapter 11 reorganizations and declining cash flow multiples in the first half of 2009, as station owners cope with the weak ad market. On a positive note, the study suggests the current environment could open the door for investors to buy their way in at lower benchmarks than possible in the past, earning acceptable rates of equity return despite lower revenue growth.
"Companies are now focused on reducing expenses and debt, and they will emerge from the current economic crisis with a more conservative business model, leading to revenue growth and at least partial recovery in station values off of today's historically depressed levels. With more than 235 million listeners, broadcast radio still remains a viable business in the long term."
Won't we ALL?