Private equity firms are snapping up broadcast companies at high prices, and that likely encouraged Nexstar and Lin TV to explore sale opportunities, Standard & Poor’s analyst Michael Altberg said. Providence Equity Partners Inc. agreed last month to pay Clear Channel Communications Inc. about $1.2 billion for its 56 TV stations. Oak Hill Capital Partners bought nine TV stations from the New York Times Company for $575 million earlier this month. Broadcasting is a mature industry with fairly flat revenues, but the cash flow still makes the business attractive, Altberg said.
Lin TV was a logical seller in a consolidating industry, Bear Stearns equity research analyst Victor Miller wrote in a research report on its announcement. Nexstar’s decision to consider a sale was more surprising because the company is believed to have bid on Clear Channel Communications’ TV portfolio, he said.
"This is a significant change for (Nexstar)," Miller wrote in the report. “We believed that the company would continue its consolidation march …"
Nexstar Broadcasting owns KSNF in Joplin and KSFX in Springfield, and is de facto owner of KODE in Joplin and KOLR in Springfield.
There is only two ways to improve profitability of a Television Station, increase revenue or reduce expense. Private equity players are like stock buyers, they seek increased value from their investments, which means increased margins and cash flow. They are not operators, they are investors. Since they do not operate, they seldom have creative plans for improved revenue. Since they are investors, they are very knowledgeable in cutting expenses. A group which is already running with limited resourses has a tough road ahead if private equity money buys them. Expect aggressive expense cuts and reduction of services to ramp up profitabiliuty and therefore values.
ReplyDeleteA couple of quick thoughts on that comment: First, every business follows that model of improving profitability.
ReplyDeleteSecond...I hope this isn't your first introduction to publicly traded companies and the one characteristic the stock market cares about. It's efficiency. Not loyalty, not improving working conditions or buying better equipment or better benefits or adding staff to provide better coverage. Efficiency, that's the only thing that matters in TV and in every company that answers to shareholders.
Exactly Right
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