On this day in 1993 (according to David Lloyd's Radio Moments, obviously), GWR acquired Wolverhampton's Beacon Radio for £3.7m as well as Mercia FM, Leicester Sound and Trent FM for £4.8m.
Kieran McGeary notes Beacon's smaller local competitor, The Wolf, was purchased for £5.2m in 2000 by Forever Broadcasting.
With inflation, GWR's acquisition of Beacon would’ve equalled £6.8m in 2015 - the year Global acquired Liverpool's Juice FM from UTV for a whopping £10m.
Is this big money for a local or regional commercial radio station?
A business is often worth its price-to-earnings ratio (P/E) - in other words, a multiple of its profit which varies by industry and economic environment.
Other methods to value a company include:
- its balance sheet (tangible assets minus liabilities)
- calculate projected cash flow at today's rate of inflation
- compare how much it would cost to start a similar business from scratch
- factors that cannot be measured (location, reputation, trust, patents, trademarks)
For a loss-making startup, its valuation would be based on future prospects and/or turnover. Some industries have a "rule of thumb" or standard ways of calculating valuations (e.g. retail looks at number of outlets and customers).
Ultimately - and I know it sounds cliché - a business is worth what a potential buyer is willing to pay for it.
If there are synergies, the strategic benefit of an acquisition will be important in determining that figure or the buyer may have a vision to make the business more cost-effective.
In purchasing Juice, Global was able to fill a major gap in its FM coverage and saw the value in a CHR station with an established audience whose profile matched that of Capital's.
The only other way to have got that would've been to acquire Radio City, which Bauer would never have sold, so a strong and profitable Juice was Global's only option.
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