Valuation of Radio

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Multiple
The bidding price can also be estimated by multiple approach. Compared with DCF approach, though this method is over simple without operation break down and profitability forecasting, however, a very important advantage is the multiple provide a clear benchmark for M&A deals, especially in a particular industry. Two other deals within radio industry are newly closed on 18.7x and 21.5x, providing Radio One more knowledge about current market condition as well as its own ongoing valuation. Given the similarities between Redio One’s case with those two acquisitions, for example, all cases are industry-level horizontal integration for synergy on scale, the multiples can be seen as the result of DCF valuation with implicit or market required model assumptions, which give us a market-proved benchmark. Also, at this time, CCC and Radio One are trading at 17.2x and 22.1x respectively. Given synergic effects after acquisition, we should expect the acquirer will trade at an even higher multiple, which is also the value provide by target stations. Hence, with information provided above, the bidding price for target stations in term of a multiplier on 2000’s BCF should be chosen at 22x or higher, but not higher than 30x, to avoid dilution.

Scenario Analysis
To test whether our DCF model provides a reasonable estimation under current assumptions, we should provide a scenario analysis on important selected parameters we assigned. In below analysis, each selected parameter is freed to adjust in a ±2% range over values in base case. In order to make clear comparison, results on bidding price in different scenarios are in term of multiplier on target stations’ BCF in 2000. As shown in Exhibit XX, DCF model result is most sensitive to changes in WACC and FCF growth in CV period, ranging from 16x to 30x, which contains our previous prediction of 22x.

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[ 1 ]. Here we are always referring to BCF multiples
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