Public Service Operating Agreements A growing number of public media organizations operate stations that are licensed to others.
Resolving Mutually Exclusive Applications There are still some frequencies available for which nonprofit organizations can apply through periodic "filing windows" at the FCC. These opportunities often result in mutually exclusive applications, for which the FCC has devised a detailed process to pick the winners.
By Marc Hand
Over the past decade a growing number of SRG members and other public media organizations have acquired an additional station. For
some the plan is to launch a second service in their "home" community. For others it is to extend an
existing service to a new audience elsewhere.
While stations have different levels of experience and resources to pursue
acquisitions, there are activities that are common to most situations.
Stations interested in acquisitions need to take both internal and external steps to
prepare for this work. The initial process requires planning and a commitment of time
and resources by the board and management staff of the licensee – not unlike the
level of commitment required for a capital campaign.
KEY STEPS IN THE PROCESS
Once a station makes the decision to expand, an analysis
must be done to identify likely options and targets. This analysis often begins with a
broad list of possible opportunities (e.g., noncommercial vs. commercial
acquisitions, FM vs. AM, outright purchase vs. management agreements) and determines
which are viable options given the specific market. For example, a large market
station may have only a limited number of noncommercial frequencies that make sense to
pursue, while a small market station may want to consider both noncommercial and
Once the potential acquisition or LMA candidates have been
identified, the very important initial contact must be made. In the commercial radio
world, this initial step is most often made by an intermediary representing the
acquiring station. Typically this person is a radio station broker, but it can also be
an attorney or other consultant skilled in acquisitions.
A third party is important at this stage because most stations, when initially
contacted, will say they are not for sale. This is particularly true when stations are
contacted by interested buyers. A third party can often solicit the more subtle
selling signals of station licensees that will not publicly admit to being for sale,
but who may mention needs they have that could be met through a sale.
Negotiate and wait.
If one or more stations emerge that may consider a sale
then negotiations begin. Prior to this stage, the acquiring station needs to
determine its ability to finance an acquisition, whether the acquisition will be all
cash, or cash and notes, and a general price range it is willing to pay. Since very
few noncommercial stations have changed hands over the years, there are few standard
formulas or comparable sales to use in determining a fair price. As a result this
step is more of the classic bargaining process of finding a price at which the
seller's and the buyer's needs and expectations converge. The buyer should expect to
offer a price range early in the process to help the seller determine their real
level of interest.
This stage of the negotiations can move very slowly, taking from a month or two to
over a year. This is especially true with noncommercial entities that must consult
boards or similar entities that control the licensee but are simply not familiar with
radio, or even the operation of the station they own. The buyer's representative may
have to take the seller through an education process before they can make even an
initial decision on pursuing negotiations. If negotiations are successful then the
buyer and seller typically create a letter of intent that highlights the major
elements of the proposed sale, such as price, terms, and physical assets sold.
Letter of intent.
The letter of intent, typically three to five pages, provides
a framework of the agreed-upon terms of a sale. This letter of intent binds the
parties to exclusive final negotiations, is signed by both parties, is typically
accompanied by an escrow deposit from the buyer, and has contingencies such as final
approval by governing boards, inspection of equipment and other assets by the buyer,
or final financing approval from the buyers lending institutions. The letter of intent
usually calls for completion of a final purchase agreement within a set period (30-45
days is typical), and for filing of a transfer application with the FCC within a short
period after the purchase agreement is completed.
The purchase agreement.
This final step in the negotiation process is a much
more extensive legal document that details all of the terms of a sale of a station.
Usually a larger escrow deposit is made with the signing of the purchase agreement
(such as five to ten percent of the purchase price). The purchase agreement is much
more binding, and typically is only contingent upon FCC approval.
The purchase is completed after final FCC approval of the sale and the
assignment of the station's license to the buyer. This usually takes three to four
months after the application is filed.
There are an infinite number of variations to this process, as well as complex and
sometimes emotional issues that come up in the process of negotiating with a seller.
In addition to a broker, stations would work closely with their FCC attorney,
accountant, and key board members through the process.
Updated July 2010
Marc Hand is Managing Director of Public Radio Capital, a nonprofit organization that helps public media organizations in all of the steps outlined here.
Public Radio Capital was created by SRG and launched as an independent organization in 2001.
Copyright 2010 Station Resource Group. All Rights Reserved.