Grant Broadcasters consolidate #2 position

Staff Writer

Bob Peters is Director of Global Media Analysis, and provides financial and strategic consultancy services to the media, entertainment, telecommunications and technology industries with a particular emphasis on the Asia Pacific region.

Bob has had a long history of working with media groups including Austereo, Grant Broadcasters, Prime Media, Southern Cross Broadcasting, Macquarie Radio and MCM.

Bob has written this report on Grant Broadcasters acquisition of the Prime Radio network.

Grant Broadcasters consolidated its position as Australia’s second largest commercial regional radio group with is recent purchase of the regional radio operations of the publicly listed Prime Media Group (PMG), whose principal activity is regional commercial television broadcasting.

Grant Broadcasters (Grant), a private company owned by the Cameron family of New South Wales, purchased PMG’s ten regional radio stations in Queensland (PMG Radio) in August 2013 for a reported price of $24.5 million.

The acquisition increased Grant’s wholly owned regional station numbers to 47, placing it second in terms of station numbers to the 66 regional radio station network of the much larger and publicly listed Southern Cross Austereo group.

PMG had assembled its regional radio network in the Sunshine State via three separate acquisitions which occurred over a two year period between August 2005 and August 2007 and which had a total price tag of $68.8 million.  Unfortunately, a number of largely unforeseen factors including the global financial crisis, severe adverse weather events and the lack of critical mass and/or a complementary regional television operation in Queensland all contributed to a sub-optimal financial performance from PMG’s radio operations over the past five years.

In the year ending 30 June 2013, PMG Radio generated total revenues of $19.8 million and relatively low EBITDA and EBIT of $3.3 million and $2.3 million respectively, all of which were not much greater than the results reported back in fiscal year 2008.

However, given their attractive demographic characteristics and future economic prospects, once they are fully integrated into Grant’s existing regional network of 37 wholly-owned stations, in a process which is likely to take at least a couple of years to complete, the former PMG Radio stations should experience considerable improvements in both revenue growth and profit margins.

Given that Grant generated total revenues of $66.0 million and EBITDA of $19.1 million in the year ending 30 June 2012, that being the last year for which financial results are currently available, the purchase of ten PMG Radio stations represents a reasonably significant development for the family owned company.

Not only will the acquisition boost Grant’s total revenues by about 30%, but it most probably has also required the company to use bank borrowings to fund all, or most, of the purchase price, which would represent a significant change for the private company, which historically has been in the enviable position of usually operating with regular net cash surpluses.

But, as uncomfortable as having a modest amount of financial leverage (i.e. borrowing) might be for a heretofore conservatively structured family company like Grant, the sizeable financial rewards which are likely to be generated by a successful integration of the former PMG Radio operations should eventually more than compensate the family owners for any anxieties which they (and their bank managers) may experience over the next few of years as they work to bed down their most recent acquisition.

Grant’s Impressive Historical Financial Performance

Fuelled by both organic growth and intermittent, and usually modest, acquisitions, Grant has enjoyed impressive financial growth for more than a decade, while at the same time maintaining a very conservative funding structure, which typically carried little or no net external debt.

In the decade to June 2012, the compound annual growth rates (CAGR) for Grant’s total revenues, earnings before interest tax & depreciation (EBITDA), and earnings before interest & Tax (EBIT) were 11.6%,11.0% and 11.2% respectively.  And over that same ten year period, profit margins have been comparatively high, with margins for EBITDA and EBIT averaging 33.9% and 31.5% respectively, although they have in recent years been trending a bit downwards.

During fiscal 2012, that being the last year for which financial accounts are currently available, Grant’s total revenues increased by 11.3% to reach $66.0 million, while EBITDA grew by 8.6% to $19.1 million and EBIT rose by 8.0% to $17.3 million.

As at the 30 June 2012 balance date, Grant had an extremely conservative financial structure with net cash (cash less external borrowings) of $1.4 million and shareholders’ funds totalling $101.7 million.  There have been only two years over the past decade when Grant ended the fiscal year in a net debt (external borrowings less cash) position and in each of those two years the net debt was less than $1.0 million.


PMG Radio’s Recent Financial Performance

Prime Media Group’s ten station regional radio operations in Queensland (PMG Radio) was assembled via three separate acquisitions which occurred between August 2005 and August 2007 and which had an aggregate reported price of $68.8 million.

Over the past five years, the financial performance of PMG Radio, although always profitable, has been sub-optimal with only modest growth in revenue and profit, combined with below average earnings margins. For a variety of reasons, many of which were unforseen at the time of acquisition, PMG was never able to unlock the considerable financial potential of its regional radio network.

Between fiscal 2008 and 2013, advertising revenues and total revenues increased at compound annual growth rates (CAGR) of only 0.5% and 0.8% respectively, while profit growth was slightly better with CAGR’s of 2.9% and 3.5% for EBITDA and EBIT respectively.  Moreover, profit margins were well below the industry norm, with PMG Radio’s EBITDA and EBIT margins averaging only 16.9% and 11.7% respectively.

In the year ending 30 June 2013, PMG Radio’s performance was also disappointing.  Advertising and total revenues each declined by 4.8% to $19.0 million and $19.8 million respectively, while EBITDA fell by 20.8% to $3.3 million and EBIT decreased by an even greater 25.8% to $2.3 million.

Given that its underperforming regional radio division made a financial contribution which was less than one-tenth the size of the group total, it is not surprising that PMG’s management and board made a strategic decision in August 2013 to divest itself of the regional radio operations, even thought the reported sale price of $24.5 million represented a 64.4% discount on what had been spent by PMG to assemble the radio operations between 2005 and 2007.


The Consolidation of Grant and PMG Radio

The $24.5 million purchase of PMG Radio is a significant one for Grant. Not only does it represent a sizeable increase in critical mass, particularly in the important Queensland regional market, but it also gives Grant the potential to significantly boost PMG Radio’s profitability by both improving revenue generation and gradually lifting profit margins.

On a simple pro-forma basis, without accounting for any likely synergies, the PMG Radio acquisition will increase Grant’s total revenues by about 30% and it’s EBITDA by about 20%.  This will make Grant about half the size of Southern Cross Austereo’s regional radio operations in terms of revenue.



More importantly, if Grant can boost PMG Radio’s revenue generation and lift its profit margins, then the positive financial impact of the purchase will be much greater.  If, for example, Grant is able to increase PMG Radio’s revenues to $25 million and lift its EBITDA margin to 25% over the next couple of years, then that would increase PMG Radio’s EBITDA to $6.3 million, which would give Grant a very handsome return on its purchase price.

On the downside, Grant has probably financed all, or most, of the acquisition using borrowed funds which means that it probably now has about $20 million in net debt on its balance sheet.

While that amount of external borrowings is not excessive given the size of the acquisition-enlarged Grant Group, it will nevertheless represent a significant change for the privately-owned family company which traditionally has funded the expansion of its network with largely internally generated funds and has been accustomed to signing off on the annual accounts with the comfort of knowing that it has been a net lender, rather than borrower, to its bankers.

Further Information

For further information pertaining to this research report, contact Bob Peters of Global Media Analysis at: [email protected]

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