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A New Equilibrium for Station Sales

What will be the cash-flow multiples for buying media properties in 2007? The answers will start coming when we see prices paid for the purchase of Clear Channel’s 448 smaller-market radio stations and its entire 42-station television group.

Those transactions will likely set the new price equilibrium.

There will be enough data for buyers to determine the cash-flow multiples. Then the station-trading market, like water, will find its lowest level and settle somewhere.

This year, private-equity firms, rather than group media companies, will continue to drive blockbuster media deals. They emerged as conspicuous buyers of media properties with the buyouts of Clear Channel Communications and Univision Communications and the purchase of the New York Times and CBS television stations.

Simply put, group media companies are not as well-positioned as private-equity firms to acquire the large stack of radio and TV stations expected to be peddled in 2007.

Many non-public groups are overleveraged and cash poor. Others are downsizing and in the process of disposing non-essential properties. And publicly traded broadcast groups are reluctant to invest in mega-deals because of depressed stock prices. Wall Street’s negative view of broadcasting, due to slow growth, coupled with impatient investors, has opened the doors for private-equity firms.

By contrast, those firms are cash rich, with access to huge pools of money from pension funds and wealthy individuals. Despite the pessimistic forecasts for newspapers and broadcast stations, private investors are attracted to media properties because they generate lots of cash and enjoy fairly predictable cash flows and relatively low capital expenditure needs.

Private-equity firms want big deals where they can invest large sums. Most are seeking returns in the range of 20%-30% over a five- to seven-year period.

So watch that investing segment in 2007. Also watch for non-publicly traded group owners to make acquisitions in midsize and smaller markets and for publicly traded groups to rid themselves of even more non-core assets.

This will be a different kind of year for station trading as the media world readjusts its strategies.