Media Maven. Radio M&A Roars Back to Life. March 14, 2011 Volume 7

Transcription

1 Media Maven Radio M&A Roars Back to Life March 14, 2011 Volume 7 Mergers and acquisitions in the radio industry have come alive in the last six weeks with over $3.6 billion in announced transactions covering 289 radio stations in 64 markets. Three significant transactions account for this massive increase in deal volume: Cumulus Media s acquisition of Citadel Broadcasting for $2.5 billion; Cumulus Media s acquisition of sister company Cumulus Media Partners for $740 million; and Hubbard Broadcasting s $505 million acquisition of 17 stations from Bonneville International. This rebound in station M&A is in stark contrast to 2010, when the largest radio station transaction was the $25 million acquisition of Finest City Broadcasting s three stations serving San Diego. One has to look back to March 2009 and Cox Enterprises $784 million go private offer for Cox Radio to find comparably sized transactions. $3.6 Billion in Radio Station Sales In the chart below, we capture the key metrics for each of the three large radio transactions that have taken place since mid-january. The chart demonstrates a range of deal multiples of between 8.2x and 9.3x trailing broadcast cash flow (BCF), with an average multiple of 9.0x. Notable 2011 Broadcast Radio Transactions Announced # of # of Purchase 2010E Trailing Date Buyer Seller Stations Markets Price ($MM) BCF Multiple 02/21/11 Cumulus Media (CMLS) Citadel Broadcasting $2,546.3 $ x 01/31/11 Cumulus Media (CMLS) Cumulus Media Partners (CMP) 32 9 $740.0 $ x 01/19/11 Hubbard Broadcasting Bonneville 17 5 $505.0 $ x Totals/Average $3,791.3 $ x Source: Company reports, Coady Diemar Partner estimates Both Cumulus Media Partners (CMP) and Bonneville represent large market station acquisitions. Citadel Broadcasting represents a combination of large markets (the former ABC stations), small markets (the heritage Citadel stations) and a radio network (the former ABC Radio Network). This might suggest that the large market stations embedded in the Citadel transaction were valued at slightly more than 9x, while the smaller market heritage stations may have garnered slightly more than an 8x multiple. Cash flow at the radio network, which we estimate at just under $20 million, likely did not materially move the needle on valuation. Hubbard Acquires Bonneville Stations in Five Markets Hubbard Broadcasting is known mostly as a television broadcaster with roughly a dozen ABC and NBC TV station affiliates in six markets, as well as investments in the ReelzChannel and Ovation TV.

2 Media Maven: Radio M&A Roars Back to Life Page 2 Hubbard has a small radio operation consisting of 2 FMs and an AM station in Minneapolis (where the company also owns TV stations) and an AM station in Wisconsin. The acquisition of 17 stations from Bonneville will quintuple the number of radio stations Hubbard has under management. Bonneville Radio Stations to be Acquired by Hubbard Market Market Rank Stations Signal Chicago 3 WDRV-FM 97.1 WWDV-FM 96.9 WILV-FM WTMX-FM Washington, D.C. 9 WFED-AM 820 WWFD-AM 1500 WTOP-FM WWWT-FM WBQH-AM 1050 WTLP-FM St. Louis 21 WARH-FM WIL -FM 92.3 WXOS-FM Cincinnati 28 WKRQ-FM WREW-FM 94.9 WUBE-FM WYGY-FM 97.3 It is our understanding that Bonneville stations generated 2010 broadcast cash flow of slightly more than $60 million, making the deal a 8.2x transaction. It is our understanding that the deal is being financed with $350 million in borrowings, reflecting 5.75x leverage, though Hubbard has significant other assets that may have enabled the banks to feel comfortable with this level of leverage. We do not believe this deal was widely shopped. Cumulus Media to Acquire Cumulus Media Partners for $740 Million On January 31, 2011, Cumulus Media (NASDAQ: CMLS) announced it would acquire the remaining equity interest in sister company Cumulus Media Partners that it did not already own from Bain Capital Partners, The Blackstone Group and Thomas H. Lee Partners, who collectively owned 75% of the equity. Cumulus will issue million shares of its common stock to its equity partners, and issue another million shares of CMLS to acquire all outstanding warrants of CMP. Based on the price of CMLS stock at the time of the announcement, the implied enterprise value of CMP was approximately $740 million, which CEO Lew Dickey equates to 7.8x CMP s estimated 2011 broadcast cash flow. In 2010 terms, we estimate that the transaction equates to 8.8x 2010 BCF, and given that there are no corporate overhead savings as CMLS has been operating CMP for the last 4 years, the deal equates to 9.5x 2010E EBITDA of approximately $77-$78 million. We estimate that CMLS s leverage will rise with the transaction, from 6.8x to roughly the mid-7s immediately after closing, given CMP s leverage of approximately 8x. Given the growth rate of the large market CMP assets, Mr. Dickey believes CMLS will be able to de-lever much quicker with the CMP assets on board.

3 Media Maven: Radio M&A Roars Back to Life Page 3 Cumulus Media to Acquire Citadel Broadcasting for $2.4 Billion On March 10, 2011, Cumulus Media announced that would acquire Citadel Broadcasting s 240 radio stations in over 50 markets for $2.5 billion. Based on our estimates, the deal represents a 9.3x multiple of BCF, with BCF being the more appropriate metric given that CMLS is not likely to take on any of Citadel management s overhead. Based on Cumulus forecast of $50 million of cost savings, the transaction multiple falls to 8.4x pro forma 2010E EBITDA. Since closing won t take place until the third quarter, Cumulus management analyzes the transaction as a 7.6x 2011 EBITDA adjusted for synergies. Cumulus will pay $37.00 per share to Citadel shareholders, with Citadel shareholders having the right to receive (i) $37 per share in cash, (ii) shares of CMLS common stock, or (iii) a combination thereof. Cumulus will partially fund the cash portion of the acquisition price with up to $500 million in equity financing from Crestview Partners and Macquarie Capital. Cumulus has also received commitments from a group of banks for up to $2.525 billion in senior secured credit facilities which we understand are on the most attractive terms Cumulus has ever received. Citadel Communications - Deal Valuation and Multiple Value of CMLS Stock Issued in Transaction (b) Stock Price - "A" Shares - CDELA $30.00 Citadel Shares/Warrants Outstanding 48.8 "A" Shares Outstanding - 11/15/ Exchange Ratio Market Cap - "A" Shares $136.5 % of Transaction Value Paid in Stock CMLS Shares Issued 78.8 Stock Price - "B" Shares - CDELB $30.00 CMLS Stock Price at time of announced deal $4.34 "B" Shares Outstanding - 11/15/ Value of CMLS Shares on 3/11/11 $341.9 Market Cap - "A" Shares $519.3 (b) Assumes investors opt for $30.00 per CDL share in cash Stock Price - Warrants - CDDGW $30.00 Note: Our analysis is based on CDL shares Warrants Outstanding 27.0 outstanding as of November 15, 2010 Market Cap - Warrants $809.6 Value of CMLS Shares Issued (a) $341.9 Market Capitalization $1,807.3 Plus: Debt $778.4 Plus: Call Premium on 7.75% Bonds $31.0 Plus: Fees and expenses $52.0 Less: Cash ($122.5) Enterprise Value (EV) $2,546.3 Broadcast Cash Flow $274.3 EBITDA $254.4 EBITDA w/$50m in synergies $304.4 EV/BCF 9.3x EV/EBITDA 10.0x EV/EBITDA with synergies 8.4x (a) See adjoining chart Source: Company reports and Coady Diemar Partner estimates Upon closing, Cumulus will own and operate 570 radio stations in 120 markets, making the company the second largest radio company by number of stations owned. We estimate 2010 pro forma revenues of

4 Media Maven: Radio M&A Roars Back to Life Page 4 approximately $1.2 billion, which we estimate puts Cumulus roughly $100 million in net revenues behind the second largest radio operator CBS Radio. Cumulus describes the combination of Cumulus and Citadel, together with CMP, as providing Cumulus with the following attributes: A national platform with approximately 120 US markets, including 8 of the top 10 markets; Critical mass necessary to compete in the local digital media marketplace; An optimal platform for further consolidation and vertical integration; A balance sheet with lower overall leverage and a simplified capital structure; A network for the syndication of content and technology assets; and A significantly enhanced equity market capitalization for Cumulus, which would provide greater trading liquidity and strategic flexibility. Final Thoughts We believe radio industry participants have been waiting for the last two years for a bellwether transaction that would help redefine where multiples in the radio sector currently reside. For the last two years, it was typical to hear talk of a 6x-8x marketplace, depending upon the size of the market. However, virtually no deals took place at these multiples. Even the handful of radio bankruptcies took place at roughly 8.8x EBITDA (see our June 2010 note A Dearth of Data). Now, within a matter of weeks, the radio industry has three bellwether transactions in a row that seems to firmly establish radio multiples in the 8x-9x range. The sale of CBS s radio assets could be the next bellwether transaction. It is our understanding that management of CBS has been asking for 10x cash flow for its radio stations, which we attribute to the low tax basis in these assets. CBS will require a high multiple for its radio stations so that on an after-tax basis the transaction is not dilutive to CBS shareholders. With banks lending on attractive terms for larger station groups, we believe it is mostly a matter of time before lending on attractive terms trickles down to smaller entities, at which time we could see a much broader pick up in radio M&A activity. Sincerely, Chris Ensley (212) chrise@coadydiemar.com About Coady Diemar Partners We provide mergers and acquisitions, private capital markets and strategic advisory services to growth companies in a number of industries. We have a breadth of transaction experience, industry knowledge and institutional relationships and provide clients creative solutions and unparalleled access to ideas and capital. We are acutely sensitive to the specific and unique requirements of each client and opportunity. For more information on Coady Diemar Partners, visit our website Contact Colin Knudsen at colin@coadydiemar.com or Scott Estill at scott@coadydiemar.com for additional information or to arrange a meeting.

5 Media Maven: Radio M&A Roars Back to Life Page 5 If you currently do not receive our newsletters and would like to be added to our distribution list, please contact Ryan Williams at ryan@coadydiemar.com. Independent Advice. Seamless Execution. This announcement is neither an offer to sell nor a solicitation to buy securities. This announcement appears as a matter of record only. Copyright (C) 2011 Coady Diemar Partners, LLC. All rights reserved. All Information as of: 3/14/2011 Clear Clear Beasley Citadel Cumulus Radio Westwood Channel Channel Lamar Broadcast Comm. Media (a) Emmis (b) Entercom One (c) Salem One Comm. Outdoor (d) Advertising Ticker BBGI CDEL.B CMLS EMMS ETM ROIA SALM WWON CCMO CCO LAMR Current Stock Price $6.01 $34.80 $4.28 $0.85 $10.70 $1.79 $4.08 $6.82 $8.00 $13.71 $36.56 FD Shares Outstanding Market Capitalization $ $1,699.9 $597.2 $33.5 $406.4 $97.1 $101.4 $145.4 $664.8 $4,878.2 $3,433.6 Preferred Stock-Exchangeable $0.0 $0.0 $0.0 $140.5 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $3.6 High Yield Trust Preferreds $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Convertibles $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Current Net Debt $135.7 $655.9 $3,227.1 $328.7 $655.4 $633.0 $314.2 $149.8 $18,686.5 $1,597.7 $2,317.5 Total Debt $135.7 $655.9 $3,227.1 $469.1 $655.4 $633.0 $314.2 $149.8 $18,686.5 $1,597.7 $2,321.1 Hidden Assets $0.0 $0.0 $0.0 $0.0 $0.0 ($223.0) $0.0 $0.0 ($163.4) ($13.8) $0.0 Enterprise Value $272.0 $2,355.8 $3,824.4 $502.6 $1,061.8 $507.2 $415.6 $295.2 $19,187.9 $6,462.0 $5,754.8 Net Revenues: 2009PFE $96.7 $723.6 $1,148.7 $249.0 $372.4 $273.5 $170.9 $340.3 $5,551.9 $2,698.0 $1, PFE $98.0 $751.2 $1,196.2 $248.5 $391.4 $279.9 $174.5 $365.8 $5,865.7 $2,798.0 $1, PFE $100.0 $766.6 $1,225.1 $252.8 $401.4 $284.1 $179.2 $379.2 $6,022.9 $2,908.1 $1,157.6 Growth '10E - '09E 1.3% 3.8% 4.1% (0.2)% 5.1% 2.3% 2.1% 7.5% 5.7% 3.7% 3.4% Growth '11E - '10E 2.0% 2.1% 2.4% 1.7% 2.5% 1.5% 2.7% 3.7% 2.7% 3.9% 6.0% Broadcast Cash Flow: 2009PFE $26.8 $218.5 $383.0 $39.4 $120.4 $95.1 $63.6 $17.8 $1,520.7 $598.9 $ PFE $33.5 $274.3 $462.5 $48.3 $133.9 $96.0 $65.0 $18.5 $1,932.9 $755.3 $ PFE $34.2 $281.1 $477.4 $52.2 $131.6 $99.4 $65.0 $23.3 $2,010.4 $822.4 $548.3 TEV/2010PFE BCF 8.1x 8.6x 8.3x 10.4x 7.9x 5.3x 6.4x 16.0x 9.9x 8.6x 11.4x TEV/2011PFE BCF 8.0x 8.4x 8.0x 9.6x 8.1x 5.1x 6.4x 12.7x 9.5x 7.9x 10.5x Growth '11E - '10E 2.1% 2.5% 3.2% 8.1% (1.7)% 3.6% 0.0% 26.0% 4.0% 8.9% 8.4% EBITDA: 2009PFE $20.1 $197.3 $334.4 $23.3 $102.7 $76.6 $53.2 $6.3 $1,287.9 $535.4 $ PFE $26.2 $254.4 $439.3 $28.4 $116.1 $70.9 $51.3 $10.0 $1,664.0 $648.0 $ PFE $26.7 $261.2 $453.4 $31.6 $111.2 $73.4 $50.7 $14.6 $1,733.5 $734.9 $506.2 TEV/2010E EBITDA 10.4x 9.3x 8.7x 17.7x 9.1x 7.1x 8.1x 29.4x 11.5x 10.0x 12.4x TEV/2011E EBITDA 10.2x 9.0x 8.4x 15.9x 9.6x 6.9x 8.2x 20.2x 11.1x 8.8x 11.4x Growth '10E - '09E 30.3% 28.9% 31.4% 21.8% 13.1% (7.3)% (3.7)% 60.2% 29.2% 21.0% 5.2% Growth '11E - '10E 2.0% 2.7% 3.2% 11.3% (4.3)% 3.4% (1.1)% 45.3% 4.2% 13.4% 8.8% Leverage Ratios: Net Debt+Preferred/2010 EBITDA 5.2x 2.6x 7.3x 16.5x 5.6x 8.9x 6.1x 14.9x 11.2x 2.5x 5.0x 2010 Free Cash Flow Per Share $0.70 $1.74 $1.26 ($0.03) $2.31 $0.40 $0.53 ($0.97) ($1.50) $0.64 $ Free Cash Flow Per Share $0.69 $2.35 $1.27 ($0.02) $2.11 $0.02 $0.67 ($0.27) ($0.63) $0.81 $ FCF Multiple 8.6x 20.0x 3.4x NMF 4.6x 4.4x 7.7x NMF NMF 21.3x 14.0x 2011 FCF Multiple 8.7x 14.8x 3.4x NMF 5.1x 94.8x 6.1x NMF NMF 17.0x 13.8x 2010 FCF Yield 12% 5% 29% NMF 22% 22% 13% NMF NMF 5% 7% 2011 FCF Yield 11% 7% 30% NMF 20% 1% 16% NMF NMF 6% 7% 2010 EPS $0.35 $0.04 ($0.00) ($0.39) $1.24 ($0.54) $0.11 ($1.20) ($5.90) ($0.25) ($0.44) 2011 EPS $0.38 $1.21 $0.30 ($0.32) $0.95 ($0.17) $0.15 ($0.55) ($3.66) $0.09 ($0.00) 2010 P/E 17.0x NMF NMF NMF 8.6x NMF 37.6x NMF NMF NMF NMF 2011 P/E 15.7x 28.8x 14.4x NMF 11.2x NMF 26.8x NMF NMF NMF NMF (a) Does not include $50M in pro forma synergies, two-thirds of could be realized in (b) Estimates reflect attributable EBITDA as it excludes 49% of Austin radio stations not owned by Emmis. (c) BCF and EBITDA estimates ajdusted for 49% of Reach Media not owned by ROIAK; Analysis does not reflect potential majority ownership stake in TV One. (d) Estimates reflect attributable EBITDA as it excludes 50% of Clear Media not owned by CCO. Radio & Out-of-Home Comparative Valuations