Lots of Radio Stations for sale - Time to buy?

[Prais]

Better hir a couple of secreturkeys and get cheap stationery. You';ll neefd 'em. Almost NOBODY answers resume letters.

That's life.

 

[quadraphonic]

If I bought a station and ran it myself I would put on the website in big letters, "WE WILL ALWAYS CONTACT YOU BACK UNLIKE MANY OTHER RADIO STATIONS!"

Then you'd spend all your time calling back wackos and hangers-on and wannabes.

 

[spindoctor1]

Josh just keeps pimping for this same broker with a very large load of junk.

Amen!

 

[Nostalgia]

So where are all of the GOOD stations for sale? Everyone keeps talking about how "everything" is for sale!

"everything" has its price! Throw a stupid amount of money at any radio station owner, big or small, good or bad, and you would be the proud owner of his radio station in a heartbeat.

 

[KirkSherwood]

Station trading will flourish once buyers can acquire stations for 6X cash flow.

 

[spindoctor1]

Station trading will flourish once buyers can acquire stations for 6X cash flow.

And that will be when?

 

[Prais]

Any fortune tellers, psychics, clairvoyants here?

 

[KirkSherwood]

Station trading will flourish once buyers can acquire stations for 6X cash flow.

And that will be when?

Heck, make it today. Upside is that the seller receives six years profit in one fell swoop. Such a deal!

 

[Goat Rodeo Cowboy]

Heck, make it today. Upside is that the seller receives six years profit in one fell swoop. Such a deal!

I sense that you are equating cash flow with profit.

It is assumed that they track one another, go hand in hand.... but...

One could have a healthy cashflow but show a net loss for the year.

One could have net profit for the year and still have a negative cash flow.

Yeah, it is probably a sign of less than great management when either of those possibilities happens.

 

[davideduardo]

Station trading will flourish once buyers can acquire stations for 6X cash flow.

And that will be when?

Heck, make it today. Upside is that the seller receives six years profit in one fell swoop. Such a deal!

And they loose the purchase price... their investment capital... in the process, if they look at it this way.

 

[KirkSherwood]

The main differences between now and then was, “then” you received ten years profit in one fell swoop. Plus, you could earn +6% bank interest on your profit versus [roughly] 1-3% interest today. Of course for an owner set to retire, receiving 6 years profit all at once, might be better than working 6 additional years for the same $. There are numerous variables not covered in this one paragraph, but that is the gist of it.

 

[radioray]

You are not making any sense.

 

[TomT]

"cash flow" pays the bills, and, one hopes, the shareholders. "Profit" is what you don't show to the IRS if you have a good accountant.

I think what he means is not long ago, stations would sell for 10X cash flow. Now the multiples are closer to six times cash flow. If you have cash flow. If your buyer can get financing.

 

[davideduardo]

The main differences between now and then was, “then” you received ten years profit in one fell swoop. Plus, you could earn +6% bank interest on your profit versus [roughly] 1-3% interest today. Of course for an owner set to retire, receiving 6 years profit all at once, might be better than working 6 additional years for the same $. There are numerous variables not covered in this one paragraph, but that is the gist of it.

That makes as much sense as giving your house with a lot of equity away for free just to not have to pay the rest of the mortgage.

I can list a bunch of MLP's with 8% or better returns, and tax free munys still pay around 4% tax free, which for the tax bracket we are talking about is better than 6% return.

 

[TomT]

Plus there are capital gains taxes to be paid (although these will be going up next year...but it's getting too late in the year to sell & close before the 1st anyway).

Kind of explains--among many other reasons--why there aren't that many sales reported this year.

 

[KirkSherwood]

"cash flow" pays the bills, and, one hopes, the shareholders.

In the buying/selling process cash flow is what remains after paying bills. . . debt, interest, stockholders, etc., are all below the line and do not impact cash flow.

Two reasons stations are not selling: owners are hoping multiples will increase someday; they overpaid and a fair offer will not cover the debt (if the lender is unwilling to take a haircut).

 

[Goat Rodeo Cowboy]

In the buying/selling process cash flow is what remains after paying bills. . . debt, interest, stockholders, etc., are all below the line and do not impact cash flow.

Are there any well versed accountants in this group? The statement above does not seem to be accurate to me. Can someone define cash flow for us?

 

[davideduardo]

In the buying/selling process cash flow is what remains after paying bills. . . debt, interest, stockholders, etc., are all below the line and do not impact cash flow.

Are there any well versed accountants in this group? The statement above does not seem to be accurate to me. Can someone define cash flow for us?

Cash Flow is generally equated with EBITDA in broadcasting. Earnings before Interest Taxes Depreciation and Amortization.

Shareholders get dividends if they are paid from the net income after taxes (exceptions would be in MLPs and some other less known devices), as they are the after tax profits. Interest is not an operating expense, so, like depreciation and amortization, charged after EBITDA.

Wiki shows why "cash flow" is ambiguous and confusing "Cash flow is a generic term used differently depending on the context. It may be defined by users for their own purposes. It can refer to actual past flows, or to projected future flows. It can refer to the total of all the flows involved or to only a subset of those flows. "

When buying a station, we want to know the money left over after operating expenses. Then we can see if the cost of the investment makes sense. So we use EBITDA as the more precise term.

 

[TomT]

Also consider in a closely held corporation there are a number of other ways to pay the shareholders that meet IRS approval but distort the "bottom line" when you are looking at a property.

 

[Goat Rodeo Cowboy]

I worked in an accounting department for a number of years and went to lunch 3 to 4 times per week with CPAs at the table. We were a closely held family firm for most of that time, but they did spin off part of the empire and had a "Initial Public Offering" and created a public company. I can tell you that for about 18 months it was "hell on wheels" as we restructured the accounting records from "entrepreneurial style accounting" to records that were acceptable to auditors who would certify the records according to the standards required of publicly held companies.

David Eduardo has pointed out the expectations of the accounting style observed by large companies, publicly traded companies. And through out this thread my message (poorly communicated) has been this: All the industry talk about valuing a radio station in relationship to its cash flow is primarily based on the idea that we are working from accounting records kept in a way that any major CPA firm would audit and "sign off" in accordance with standard accounting expectations. EBITDA often comes up in articles about radio and cash flow and selling prices.

If you will go to the web and poke around you will find that some people want to talk about "Free Cash Flow" which turns out to be another animal altogether.

Then Entrepreneur.com has a lot of advice to guys to want to wheel-and-deal in small businesses, CLOSELY HELD and their definition of Cash Flow does not come from the same universe discussed above.

If you are Clear Channel, Cumulus or Citadel or one of the other rather sizable broadcast organizations you are normally buying or selling substantial stations in substantial markets so the accounting is all kept pretty much "in the same language".

In recent years I have gone to some county seat towns to look at some mom-and-pop stations being operated with "shirt-pocket country-store bookkeeping" and some of these people tell me "This is my cash flow" and I want 10X as a sale price. And when you do your due diligence and prowl through the records.... if they keep records... you see that the guy wanting to sell is "Eating Rainbow Pie and drinking Watermelon Wine".

I kept books for crop dusters, car dealers, gas stations, radio stations, churches and an employee healthcare plan. I've got a closet full of Rainbow Pie and Watermelon Wine I want to sell at 16X! ;D