Subscale Broadcaster That Could Get Bought Out

I have spent the last few months researching the broadcast stocks as the industry is primed for deregulation, mergers and acquisitions and a multiple re-rating. I have written up two highly levered broadcasters so far that look to be multi-baggers, here and here. I have also been tweeting about the opportunity for any of you who follow me.

Today I am going to stick to this theme of FCC deregulation with another interesting broadcast stock I own. Unlike the prior two writeups, which have done exceptionally well, both up over 50%, this name is down and has just as many opportunities to outperform over a multi-year period.

Here is the quick back of the napkin thesis:

• Market cap of $186 million and enterprise value of only $273 million.

• A diversified media portfolio including 49 owned television stations, 44 owned radio stations and a “hidden” ad-tech business growing 40% per year.

• Based on recent acquisitions, the company’s fast growing and owned ad-tech business could exceed the entire value of the company allowing you to own the TV and radio business for FREE.

• Owned spectrum at just six TV stations that could be worth well north of $300 million.

• The remaining TV stations are located in markets where major broadcasters with cash flow are likely to consolidate and do acquisitions should station caps get lifted. Historical EBITDA at these remaining TV stations is in the $40 million dollar range and could be higher if a strategic takes over and consolidates costs. A 6.5x EBITDA multiple implies a $260 million valuation.

• The 44 owned radio stations have generated anywhere from $10-20 million of EBITDA per year and could be worth $50-100 million in the event of a sale. The company owns six Los Angeles, California stations and the last comp to trade in Los Angeles sold for $82.75 million for a SINGLE station.

• The company is one of the only broadcast stocks without super voting Class B shares and is a sitting duck for a takeover.

• An astute investor who is well experienced in the media space recently acquired a competing TV and radio company for $200 million. This investor has tried take over other multi-billion dollar broadcasters and is now using public equity to rollup the space.

• A private equity firm acquired another competing broadcaster for a $476 million enterprise value that was generating $60 million of EBITDA. This private equity firm also owns a significant chunk in the affiliate that the company I am writing up operates with.

• George Soros is building a radio empire with his recent purchase of 230 stations from Audacy. In addition, George Soros has quietly been purchasing radio stations that directly compete with this company that I am writing up.

This company has a significant amount of assets including spectrum, valuable cash flowing media assets and a “hidden” digital media business growing revenues at a 40% clip with real EBITDA. The company is off the radar of most media investors given the absolute low market cap and the “micro-cap” status. Given the lack of super-voting class B stock, this company is a sitting duck for a takeover. In addition, this could be a multi-bagger with limited downside.

Entravision Communications EVC 0.00%↑ owns 49 Hispanic television stations, 44 Hispanic radio stations and Smadex, a Barcelona headquartered programmatic advertising business that places ads predominately on mobile gaming apps. With a share price of $2.15, the company has a market cap of $193 million and an enterprise value of $279 million. I wrote about Entravision on November 27th, 2024 for anyone who wants a quick overview of the business and operations.

Investment Thesis:

• Entravision is the smallest broadcast stock in the market with a market cap of $193 million and an enterprise value of just $279 million. The company owns a collection of Hispanic TV and radio stations and also a fast growing programmatic advertising platform in Barcelona, Spain. Entravision was a controlled company for the entire corporate history until the late founder Walter Ulloa passed away on December 31st, 2022. With the passing of Walter, the class B shares collapsed and Entravision became for the first time, an uncontrolled company.

• Following the passing of Walter Ulloa, Entravision hired Michael Christenson to serve as the CEO in July 2023. Michael was an investment banker and worked in various tech roles including Salomon Brothers, Citigroup Global Markets, CA, Inc., New Relic and a managing partner at Mayten Research.

• On March 5th, 2024, Entravision announced they lost a contract with Meta. The stock plunged over 50%. Before Michael joined as the CEO, the former executive team used a significant amount of capital to invest globally into the digital ad market, using the resources of the profitable TV and radio business. The global acquisitions generated minimal free cash flow despite the large headline EBITDA numbers the company reported.

• Over the course of 2024, Michael Christenson exited the remaining global digital businesses, besides Smadex, and downsized the corporate executive team. Christenson also has begun reinvesting back into the TV business by adding additional morning news programs.

• Entravision’s Smadex business is in growth mode and is likely worth the entire market cap of the company based on recent transactions in the industry. Smadex is a programmatic advertising platform in Barcelona, Spain and is growing at a rapid pace. In Q4 2024, revenues were up 49% and for the full year of 2024 revenues grew 42% to $142 million. EBITDA also expanded from $4.4 million in 2023 to $12 million in 2024. The industry is growing at a 20-25% rate and I believe Smadex will continue to grow faster than the industry as they are rapidly hiring more sales individuals to target the U.S. market.

• A competitor to Smadex called AdTheorent Holding Company, was acquired for $324 million on April 1st, 2024. AdTherorent had $124 million of net cash on the balance sheet at the time of the transaction so the enterprise value at the time of the acquisition was $200 million. AdTheorent was a public company at the time of the acquisition and had $170 million of revenues and $15.6 million of EBITDA. Sales also were only up 2.8% in 2023 and only up 0.4% in 2022. Smadex has almost the same sales and EBITDA profile but is growing at a 40% clip. There is a case to be made that Smadex could be worth more than the entire market cap of Entravision.

• Entravision owns valuable spectrum rights. In the 2017 incentive auction, Entravision sold spectrum at four stations for a combined value of $263 million. The stations included, Monterey-Salinas for $54 million, Hartford-New Haven for $125 million and two Washington DC stations for $25 million and $58 million. The company continues to retain valuable spectrum rights at various stations. Six stations that I think could be worth more than the enterprise value are San Diego, California, Boston, Massachusetts, Hartford-New Haven, Connecticut, Monetary-Salinas-Santa Cruz, California and two stations in Santa Barbara, California. I think the spectrum on these stations could be worth in excess of $300 million if another incentive auction occurs. The Boston station could be worth over $150 million alone, given the $161 million and $162 million spectrum transaction that occurred in 2017 with the sale of WGBH Educational Foundation and WHDH-TV, respectively.

• The company’s remaining TV stations are primed to be consolidated by a strategic. One strategic acquirer could be MediaCo MDIA 0.00%↑ which is owned and ran by serial media acquirer Soo Kim of Standard General. Mr. Kim made his mark on the industry by acquiring Young Broadcasting and rolling up the space. Young Broadcasting was later sold to Media General in 2013 and then absorbed by Nexstar Media Group NXST 0.00%↑. Mr. Kim then tried to take over TEGNA TGNA 0.00%↑ for $24 dollars per share but was then later blocked by the FCC.

• Since the failed acquisition of TEGNA, Mr. Kim has been using the publicly traded MediaCo to acquire Hispanic TV and radio stations. On April 17th, 2024, MediaCo acquired Estrella Media for $200 million. Given the recent deregulation moves from the FCC, I suspect Mr. Kim will continue to do acquisitions in the Hispanic media space. Entravision would be a natural acquisition and allow MediaCo to get to scale in the Hispanic media space.

• Another potential buyer of Entravision is Searchlight Capital. Searchlight Capital purchased Hemisphere Media on May 9th, 2022 for a $476 million enterprise value. Hemisphere Media was generating around $60 million of EBITDA at the time or a 8.0x EV/EBITDA multiple. Hemisphere Media owned Hispanic TV stations and a Spanish streaming platform called Pantaya. In addition, Searchlight Capital and ForgeLight purchased a 64% stake in Univision in 2020. Univision is Entravision’s largest affiliate. Searchlight Capital would be a natural buyer of Entravision’s TV stations given the overlap of Hemisphere Media and Univision.

• George Soros might even be an acquirer of the radio stations that Entravision owns. In 2022, Soros acquired 18 conservative Hispanic radio stations from TeleviaUnivision for $60 million. In addition, Soros just recently acquired all 200 of the radio stations from the bankrupt Audacy, making him the largest radio owner in the United States. Entravision owns six radio stations in the Los Angeles market which could be worth a significant sum. In 2017, Emmis Communications sold KPWR Power 106 to Meruelo Group for $82.75 million. In addition, Salem Media, recently sold seven radio stations for a combined total of $80 million. Before Entravision combined the TV and Radio stations into a single segment, the radio business was generating $10-20 million of EBITDA, subjected to political years.

• The valuation of Entravision is compelling. Smadex could be worth $200 million, the spectrum could be worth $300 million and the remaining TV and radio stations could be worth an in excess of $300 million. Adding all of this together, I get a market value of $800 million which would equate to a $8.90 share price.

• The thesis does have some risks. The company has be investing in their TV business by adding morning news channels. These have come with additional costs and might not be cash flow positive. Growth may slowdown at Smadex and there might not be an exit. The FCC could also fail to lift station caps.

Entravision is a subscale broadcaster with a hidden ad-tech business that is growing at a 40% annual rate. The company owns valuable spectrum assets and there are three large financial players attempting to roll-up the Hispanic media space. With the FCC pursuing rapid deregulation, the company could easily be taken out by a strategic. Given the low absolute market cap, I don’t think too many other investors are looking at this opportunity.