The new year has been pretty sluggish in terms of major news about the media economy. Last week all of that changed when Cumulus announced it was entering into an exclusive arrangement to acquire Citadel. If consummated, the new company will be a radio powerhouse, second only to Clear Channel. The company will be in just about all of the top 25 markets, with many stations holding strong positions.
Does this proposed merger mean that M&A activity is on its way back? In January Hubbard Broadcasting announced it was buying 17 of Bonneville International's radio stations in several large markets for $505 million dollars. In the first major radio deal in years, the multiple for trading (cash flow X multiple = price) was estimated around "8" which is at the low end of pre-recession multiples.
The Cumulus-Citadel deal is for slightly more than that, but still below double digits. So has radio as an industry totally valued downward to single digit multiples? Is this reflective of the competition impacting radio from Pandora and other Internet radio stations, satellite radio, Mp3 players, etc.? Is this an anomaly or part of a long-term secular trend?
Finally, are there other radio companies potentially in play? Spanish Broadcasting Systems has had its share of economic woes like Citadel, but seems to be improving. Could Univision finally be motivated to get our of radio by putting its group holdings up for sale?
The Cumulus-Citadel announcement brings a renewed look at radio. The industry finished 2010 strong, with a very good fourth quarter--one of the best in years. The RAB has pegged total revenues at just over $17 billion for the year. Perhaps these big players taking the lead will spur some other action. Stay tuned.
