Mumbai: Reliance Broadcast Network Ltd (RBNL)—the media services arm of the Reliance-Anil Dhirubhai Ambani Group (R-Adag)—which operates the radio station BIG 92.7 FM, is in talks to acquire Radio City from private equity (PE) fund India Value Fund Advisors Pvt. Ltd (IVFA), said three people familiar with the deal and one who is directly involved.
The fund owns the radio channel through its stake in Music Broadcast Pvt. Ltd (MBPL).
IVFA, which manages $1.4 billion (Rs 6,400 crore) across four funds, usually buys controlling stakes in companies and had invested in MBPL in January 2005.
Looking to exit its investment, the PE fund has approached several potential buyers, said the three persons familiar with the development.
An email sent to IVFA on Tuesday remained unanswered. Calls and messages sent to Vikram Nirula, partner at IVFA, also did not elicit any response. An RBNL spokesperson declined to comment on the story.
The PE fund helped MBPL build a management team, introduce new programming and marketing initiatives, besides supporting the creation of a better sales force and processes.
“The two companies have been in talks, but nothing has been finalized yet,” said the person directly involved in the deal.
While the valuation of the Radio City stake wasn’t immediately known, IVFA has put about Rs 150-200 crore in the company so far, said a PE fund manager familiar with its investment.
Typically, PE funds look at an internal rate of return of at least 25% on their investments.
The Indian Readership Survey for the second quarter of 2010 ranks BIG 92.7 FM as the second most-listened-to radio channel with a listenership of 23 million, while Radio City has 14 million. The combined listenership of the two channels at 37 million would be close to that of market leader Radio Mirchi, which has 42 million.
“Acquiring Radio City could give BIG FM a competitive edge as it can have different programming formats in the same city,” said a consultant in the media and entertainment practice of an audit and consulting firm. He’s not authorized to speak to the media on specific transactions.
A senior executive with another private radio station said talks on such a deal had been initiated around two-three months back, but were facing some “execution problems”.
“Every major radio broadcaster as well as other media companies, including print players, have looked at the deal,” said the consultant cited above. He said the deal faced some difficulties as current licensing norms do not allow one player to have multiple licenses in a city.
“The third phase of the licensing auction is going to take place in the first half of 2011, and as part of that there will be some regulatory changes. Several industry bodies have asked for changes, including allowing multiple licences…so IVFA may be anticipating that change too and so looking to exit,” he said.
None of the persons mentioned in the story wanted to be identified.
The head of the PE firm cited earlier also said that any deal between RBNL and MBPL would need to be structured keeping in mind that norms mandate a lock-in period of five years before existing licence holders can exit.
When IVFA invested in MBPL, Radio City had a presence in only four cities—Bangalore, Mumbai, Delhi and Lucknow. The company acquired licences in 16 new cities after IVFA took over. The sale, therefore, experts say, may need to take place in phases.
Ambit Capital Pvt. Ltd said in a 24 November research report that phase III of radio licensing may lower the lock-in period to three years. “This will provide an exit option to the loss-making players, leading to consolidation in the industry. The move will also benefit the large players who can grow via mergers and acquisitions without being dependent singularly on new frequency allocation from the government,” the report said.
Hit by the economic downturn, many FM radio channels found the going difficult as advertisement revenues for some of them declined by as much as 10% in 2009, according to a media and entertainment industry report prepared jointly by audit and consulting firm KPMG and the Federation of Indian Chambers of Commerce and Industry (Ficci).
“Overall, the sector continued to report losses. While some of the large networks expect to break even over the next three years, cost structures continue to be a concern,” the KPMG-Ficci report said. Radio accounts for 3.5% of the total advertising spend in the Indian media space, according to the report. Industry estimates peg the total ad spend in Indian media at Rs 22,000 crore.
Since it isn’t a publicly held company, Radio City’s financials are not available in the public domain. RBNL posted a revenue of Rs 180.7 crore in fiscal 2010. At present, BIG FM contributes around 60% to RBNL’s revenue.
RBNL’s shares rose 1.46% to Rs 90.05 on Wednesday on the Bombay Stock Exchange, while the Sensex lost 1.18%.
HT Media Ltd, which publishes Mint, runs radio station Fever 104 FM in four cities where Radio City and Big FM are also present.