Montreal media company Stingray Digital Group Inc. is making a big bet on a mature industry with the purchase of Newfoundland Capital Corp. Ltd., Canada’s second biggest private radio broadcaster.
Stingray, best known in Canada for its commercial-free streaming service Stingray Music, will pay $506-million for NCC including the assumption of $112-million of debt, the company said in a news release late on Wednesday.
It is a rare radio takeover in Canada’s media industry, which has consolidated around its largest players over the past decade. Most of the country’s radio companies have become embedded into larger conglomerates like Rogers and Bell and radio has sometimes become an afterthought.
Stingray founder and chief executive Eric Boyko has positioned the company as an active industry consolidator since it went public in 2015, making six acquisitions in the past year alone. This expansion into radio would make it one of the country’s biggest multi-platform music providers, if not the biggest.
In NCC, Stingray gets a business with a strong financial profile and decent scale. NCC, which is based in Dartmouth, N.S., holds 101 radio licences stretching across Canada, including 82 FM and 19 AM stations, and operates 72 local and 29 repeating stations. It has generated a 37-per-cent margin on earnings before interest, taxes, depreciation and amortization over the past two years.
The business also throws off a lot of cash, generating roughly $170-million in advertising revenue annually. Stingray said NCC’s “robust free cash flow generation” will support its growth ambitions and dividend, adding at least 30 per cent to adjusted net income a share within the first year of the deal’s close.
Stingray buys licences to songs and then makes money selling the music as preprogrammed packages to cable providers, satellite operators and other broadcasters. It typically gets paid a fee for every subscriber. It also has a unit that sells customized music for commercial clients including Subway and Fairmont Hotels.
The NCC deal allows Stingray to diversify its revenue base, lessening its dependence on cable companies and increasing its exposure to other sources such as national and local advertisers. Stingray said it intends to leverage NCC’s advertising client base and sales force to grow its TV specialty channels and advertising revenue.
Nova Scotia’s Steele family controls NCC through a special class of multivoting shares and have struck a formal agreement to support the transaction. Stingray said it will purchase all of NCC’s stock for $14.75 a share, a premium of 16 per cent over the company’s volume-weighted average closing share price on the Toronto Stock Exchange for the past 20 days.
“We expect that our combined company will stand out in today’s fiercely competitive market for its world class talent and complementary service offering,” said Rob Steele, chairman and CEO of NCC. “Together, we have begun to build a solid foundation for Canada’s next great media group.”
Stingray is financing the deal through a combination of $450-million of new credit and $180-million of equity. That includes a $40-million private placement negotiated with the Caisse de dépôt et placement du Québec.