Sorry boys - 8x cash flow is the highest going rate to buy a radio station.
If ETM could get 15x EBITDA (or whatever numbers you folks come up with) then why haven't they sold a few stations and paid down their debt?
Tell me why.
Stop insulting me, and tell me if a radio station is worth so much money why hasn't ETM sold a few of them to prove to the world that they can pay their debts? Why hasn't Radio One? Tell me, tell me, tell me, please...
What, no answer? How about this. They have not sold any radio stations because the low sales price would prove that ETM's enterprise value is very low. 8x cash flow at most.
Why? Think hypothetically...
Station A generates 1 million in cash flow today. Buyer pays 8 million for station A. Buyer's cost of capital assuming debt financing is interest expense 800K/year. Cash on cash return is 200K/year. Not much (2.5%) for an 8 million dollar liability. Even if radio is not in decline.
So what happens in year 5 when radio station A cash flow is only 500K and the buyer has repaid little debt and wants to refi? That is ETM's situation. They had lots of cash flow and lots of debt years ago. Now they have lots of debt and half the cash flow.
Even paying 8X cash flow is too high in this environment. I think, if there are any sales 6 or 7 times cash flow is more likely.
But don't take my word for it. As moody's indicated the recovery on radio one debt in a default would be low. The EV of Radio One is less than its debt. ETM is in the same boat.
Radio one fell 90% in months when it was time to refi. It isn't refi cruch time for ETM just yet. But its coming soon and markets will anticipate, so upside is limited here.
Honestly, put aside your investment bets and think if ETM's radio stations are worth so much, why haven't they sold a few of them and solved all their problems? Why hasn't Radio One done that to save itself?
Golf... read the 10Ks... stop making stuff up. You ask why didnt they sell stations? The answer is they did. Debt was $973 Mil at 12/31/07. During 2008 they sold off stations in several transactions, and yielded over $40 Mil cash, which was a large ingredient in their debt repayments during 2008.
Debt is down to $715 mil, and the debt is now manageable and is more easily manageable each day, as debt is being repaid at $15 Mil per quarter, which also reduces the interest expense. Management likes their current operations evidently, and does not need to sell stations to prove anything to the markets or to golf messiah.
So debt is down by more than a quarter billion dollars. The crisis is over, except for shorts like golf messiah who face major crises.
reducing your debt by ONE THIRD from year end 2007 to year end 2010, which includes very BAD years for radio in 2008 and 2010, shows the TREMENDOUS cash flow generation of this entity. That is all you need to look at, and also see how 2010 cash flows are BETTER than the average of 2008 to 2009 to know that this thing is going to continue to pay down debt RAPIDLY. It is not about the tangible value of the assets, which Gold.idiot dwells on. It's about the fact that the radio licenses are STILL a license to print money...and you don't just get a license, and build up an advertising-generating audience overnight.
This is getting really tiresome, and I thing golf.idiot is overdue for "ignore" at this point.
"Station A generates 1 million in cash flow today. Buyer pays 8 million for station A. Buyer's cost of capital assuming debt financing is interest expense 800K/year. Cash on cash return is 200K/year. Not much (2.5%) for an 8 million dollar liability. Even if radio is not in decline."
I am not sure I follow your calculation of the 2.5%. Most likely buyer didn't pay 8M all out of their pocket. Let's say they put down 1M and finance the rest 7M, then the return is 200K/1M=20% a year. That's how leveraged buy out works. And they will come to radio eventually.