Acquiring a Station

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

Identify options.
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 commercial frequencies.

Court contenders.
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.

Closing.
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.

January 1998

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.