As media brokers we are often asked questions concerning station values, how to build value, and the station sale process. Listed here are some of the most commonly asked questions:
- How can I double the value of my radio and or television property?
- Performance vs. Potential? What do buyers look for?
- What is due diligence?
- How long does the sale process take?
- What happens to my employees in a sale?
- How do you protect confidentiality of my station sale?
- How do you qualify buyers?
- Will a sale be held up during a license renewal period?
We will be adding more questions and answers periodically as we receive feedback on this section of the site.
Do you have a question on station valuation, financing, or the station sale process that you would like answered?? If so, please send us your question.
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How can I double the value of my radio and or television property?
Is there some magic formula for increasing the value of your stations?? Many owners ask us that and the answer is YES. The formula that we see every day in many stations is simple. Let me share it with you.
Focus on increasing your sales revenues by no less than eight (8%) during each of the coming four years. You may increase your rates, increase your sell-out level, focus on building new customers via non-traditional revenues or Internet business, or even find some rental income from your tower and SCA rental. The goal is a sales increase of at least eight percent a year.
At the same time, allow your operating expenses to increase no more than four percent (4%) each of those same four years. Control expenses and watch for cost savings throughout your operations.
The result is magic. You will see your net operating profit, what we call “cash flow”, increase by 17 to 18 percent annually. That will result in the cash flow of the station doubling in just four years. Stations are valued on multiples of cash flow. So, doubling your cash flow every four years results in doubling the value of your station every four years also. A magic formula, maybe, but a darn good yardstick for measuring success, absolutely.Back to Top
Performance vs. Potential? What do buyers look for?
We often hear from small market radio broadcasters interested in knowing what their stations are worth. In many cases, owners want to sell us on the application of improved sales and management skills. They want to sweep current or past history under the rug and focus on tomorrow. They hope that we can then use the same sales pitch with buyers to deliver an outstanding price for their broadcast property.
Unfortunately for these sellers, buyers are just not that dumb. Buyers recognize that the best predictor of a station’s value and potential is its recent history. They want to look at trailing cash flow, not projections of astronomical growth. Such claims are simply not believable or bankable.
In one recent case, a mid-Atlantic broadcaster told us that his station, which we would have appraised at $1.0 to $1.2 million was now worth $3.5 million or more because it could be upgraded from a Class A facility to a C1. This improved signal would then reach the edge of a top – 75 market. The owner believed that just reaching the market was enough to justify this inflated price.
Buyers generally do pay something for improved signals. But claiming that because a signal reaches a market that it therefore becomes a viable signal and justifies a price triple the current value is unrealistic.
Sellers should try to maximize the prices for their stations. They need to focus on building cash flow which is the single best determinant of the price of a station when sold. The potential to upgrade a signal, switch to a more popular format or improve the sales effort are nice. Believing that potential alone will double or triple the value of your stations immediately in the eyes of buyers, however, is not sound thinking. Cash flow is always better in the long run in valuing your stations.Back to Top
What is due diligence?
Due diligence is the process of reviewing materials that are prepared by the Seller for the Buyer. These may include items such as descriptions of real estate, personnel lists, financial statements, contracts and leases, etc. These materials generally are attached to the contract for sale as Schedules.
How long does the sale process take?
Marketing the station can take from several weeks to several months depending on the property. Negotiating and drafting a contract for purchase and sale of a station can also take from several weeks to several months depending on the complexity of the deal. The FCC review and approval of the transfer usually take from 90-120 days.
What happens to my employees in a sale?
Technically, in an asset sale, employees are terminated by the Seller on the day of closing. The Buyer then has the option of re-hiring any or all of the employees that he or she may need. In actuality, most purchasers retain the vast majority of the current employees following a sale.
How do you protect confidentiality of my station sale?
It is our standard practice both to place any prospective purchaser under a Confidentiality Agreement before sharing sensitive information concerning a property being offered for sale. In addition, we are very careful not to reveal the particular property to a buyer until we have qualified them as to both their interest in the stations and their ability to close a transaction.
How do you qualify buyers?
We discuss with them their specific interests and their ability to fund a purchase. We focus on learning where both their equity and debt will come from to close the sale. In many cases, we will speak directly to their banker and investors to assure our clients that the purchaser is qualified.
Will a sale be held up during a license renewal period?
The FCC generally does not grant license transfers when the stations involved are in the midst of license renewal. A transfer may be delayed until the license renewal is granted. Buyers and Sellers often enter into a Time Brokerage Agreement to allow the Buyer to be operating the station and to allow the Seller to remove himself from daily operations as permitted by FCC regulations.