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MVP’s Bill Fanning was quoted in The Deal article, Digity could make waves as IPO, merger candidate

Digity could make waves as IPO, merger candidate

By Jaewon Kang Updated 05:45 PM, Sep-10-2014 ET

As Digity LLC aggressively rolls up radio stations nationwide, industry observers are broadcasting the media company’s attractiveness as either a merger or initial public offering candidate.

West Palm Beach, Fla.-based Digity, founded by long-time broadcast veteran and now CEO, Dean Goodman, is a diversified media company known for its radio stations across the country, including parts of Florida, California, South Carolina and Texas. It is also involved in special event marketing and digital media.

“Dean has been very adept and creative,” said Bill Fanning, managing director with investment bank Media Venture Partners LLC, pointing to the company’s acquisition strategy.

Starting with its consolidation of the West Palm Beach market, Digity has been actively rolling up assets, he explained.

Digity, with $5 million in financial help from West Hartford, Conn., private equity firm Balance Point Capital Partners LP, agreed in May to purchase Three Eagle Communications Inc., an operator of 48 radio stations throughout Iowa, Minnesota, Nebraska and South Dakota.

That deal came just eight months after Digity agreed to pick up NextMedia Group LLC, which has 33 radio stations in eight markets, including Chicago, Milwaukee, Myrtle Beach, S.C., and North Dallas, Texas. Once the Three Eagle Communications deal receives regulatory approval, Digity will own 113 radio stations.

“It’s an interesting bag of assets,” said an industry source who asked to remain unnamed, adding that while Digity’s stations in West Palm Beach, San Jose, Calif., and Nebraska are “very attractive,” the company’s property in so-called unrated, or small, markets of the Midwest aren’t as appealing.

In a phone interview, Goodman, said he hasn’t really contemplated whether his company is takeover bait.

“We’re rapidly expanding [our] digital, special events, radio company,” the CEO said, adding that Digity is being “acquisitive in the United States for radio, television and digital.” He declined to comment on Digity’s IPO prospects and to elaborate on the company’s financials.

Media Venture Partners’ Fanning pointed out that public companies in the radio space have been “opportunistic” lately — CBS Radio Inc.’s acquisition of a New York radio station from Merlin Media LLC for $75 million in 2012 is one example — and wouldn’t be interested in picking up Digity as a whole. Still, he said, Digity could pursue additional acquisitions and then either go public or do a merger of equals.

Alpha Media, for instance, could emerge as a good fit for Digity, Fanning said. Alpha likely has a similar cash flow to Digity, he said, noting that the Portland, Ore., company has been “pretty actively aggregating properties and gaining scale.”

Alpha closed its merger with L&L Broadcasting LLC in July. Alpha, known as Alpha Broadcasting LLC prior to the merger, operated six stations, while L&L, also based in Portland, operated 43 stations in seven markets.

A merger between Alpha and Digity would be good for both companies, said Ed Seeger, president of media brokerage firm Seeger Media LLC, adding that the pair could also look to take the combined company public.

Seeger said he sees Digity as a potential merger target for Saga Communications Inc. or companies similar to Saga, adding that the Gross Pointe Farms, Mich.-based broadcast company is in “excellent shape.” But he also said while Saga has power to pursue deals, management has been a conservative buyer. Saga, which trades on New York Stock Exchange, has a market capitalization of approximately $222 million.

Doyle Hadden, president of broadcast media brokerage firm Hadden & Associates Inc., said Digity could look to merge with one of the medium-to-top players, or a company ranked somewhere between 20th and 50th in the industry, citing Naples, Fla.-based Beasley Broadcast Group Inc. as an example given that the two radio companies hold stations in different markets. Beasley, which trades on Nasdaq, has a market cap of around
$140 million.

Digity and Alpha have similar acquisition strategies, but the pair doesn’t have much geographic synergy, said another industry source familiar with the two companies.

The source noted that Alpha hasn’t seen Digity’s strategy as the right one. Unlike Digity, Alpha has been scooping up rated properties and staying away from little markets.
Not only that, the chief executives of both companies are radio veterans around the same age who would rather be “the king of [a] smaller kingdom than a prince of something much bigger.”

As for Digity, the company would pursue a merger only if it came out on top, the source explained, adding that Goodman has indicated that he wants to take the company public in the near term.

With cash flow of $30 million to $40 million, Digity is likely to pursue more acquisitions before going public, the person said, pointing to its tendency to scoop up businesses that have been on the block for a long period of time. Next Media, for instance, was on sale for two years. The person declined to name specific targets for Digity, however.

Alpha CEO Larry Wilson has also indicated that he wants to go the IPO route, the source said. Alpha currently has about $32 million in cash flow, which is big enough for the company to take itself public. But Wilson wants to wait until the company has around $50 million in cash flow, the person explained.

If both Digity and Alpha were to debut on the market, though, Alpha would be in a better shape, the source speculated. Digity could have an “identity crisis” as an operator of stations in smaller markets, which don’t fit with the big market, that person added.

But given Townsquare Media Inc.’s disappointing debut earlier this year — the Greenwich, Conn., radio station operator priced its IPO at $11, below the expected $14 to $16 range — near term may be a “precarious” time for Digity to explore the IPO route, Seeger Media’s Seeger said.

Overall, a sluggish atmosphere prevails over the radio space, Seeger said. He also said that while Digity’s pure number of stations may be attractive, the company is not necessarily a leader in the geographic markets in which it has properties.

Still, dealmaking has been active in the radio space, said Frank Kalil of Kalil & Co. He attributed the fluid M&A levels to a “vast amount of cash” on the sidelines and low interest rates.

“Everybody wants to consolidate. Everybody wants to grow big,” Kalil said, adding that the challenge with becoming large is that the “larger you get, the more attractive you become.”

Officials with Alpha, Saga, Beasley and Balance Point didn’t return requests for comment.

Media Venture Partners

Media Venture Partners (MVP), a division of Financial Telesis, Inc. provides strategic counsel and financial services, mergers/acquisitions, private equity/debt raises, valuations and appraisals. Founded in 1987, MVP has offices in San Francisco, Boston, Boulder and Kansas City. Additional information is available at www.mediaventurepartners.com or 415-391-4877.

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