A generation back, media assets drew premium prices on what some of us considered the waterfront property principle - a dominant TV/radio/newspaper comes to market once in a lifetime, so when it does, strategic buyers paid what it took to snag the asset.
Half a generation back - up until 2007 - valuations in media deals went through the roof, as the private equity crowd joined the party. These buyers saw assets that generated plenty of cash, and enjoyed high barriers to entry. We know what happened next: many of these buyouts are shaping up as disasters.
Premium valuations on media acquisitions went out the window with the recession, and the meltdown in credit markets. Assets that have changed hands in the past year did so at distressed prices.
A takeover on Friday by Cogeco Inc. showed valuations are now recovering, as strategic players once again try to grab the best media properties on the block.
Cogeco, a cable play with a relatively small network of five radio stations in Quebec, bulked up in the province by taking on 11 stations from Corus for $80-million in cash. Cogeco is paying for the purchase with existing credit lines.
Corus is selling a unit that has been a drag on its performance for a decade - the stations were acquired for $185-million back in 2000. Profit margins on the rest of the Corus radio network rings in at 35 per cent. The Quebec stations were expected to generate 10 per cent margins this year. Corus is obviously well served by putting its capital to work elsewhere.
Cogeco is clearly betting that it can improve operations at a larger Quebec-focused network, because it is paying up for these stations. A report Friday from BMO Nesbitt Burns pegs the takeover valuation on this small network at 13 times the unit's projected earnings before interest, taxes, depreciation and amortization, well above the multiple of 9 times EBITDA that Corus commands. Using a slightly more optimistic assumption on the Corus unit's prospects, Thomas Weisel Partners pegged the multiple on the takeover at 10 times EBITDA.
Are premium prices for media the new normal? Analyst Ben Mogil at Thomas Weisel Parnters says no, writing in a report on Friday; "We would not extrapolate the 10x multiple as the new normal for radio assets as Cogeco having media assets in Quebec has a number of synergy opportunities."
Andrew Willis