Shutdown Delaying, Not Stopping, M&A, Say Brokers, Analysts
The government shutdown’s freeze on filing documents with the FCC makes transactions difficult to complete, but it’s unlikely to have much of an effect on them in the long term, said satellite, cable and broadcast brokers and analysts in interviews. “I don’t think [the shutdown] will lead to less deals, it'll just lead to less announced deals,” said BIA/Kelsey analyst Mark Fratrik. “Once the shutdown ends, we'll have a flurry of deal announcements.” The shutdown is likely to delay mergers and acquisitions rather than kill M&A, but that delay could have consequences for buyers and sellers banking on deals occurring in a specific time frame, several brokers said. “There may be some very unhappy people involved in transactions” if the shutdown lasts for a long time, said broadcast broker Robert Heymann, Chicago director of Media Services Group.
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Transactions that haven’t already been filed with the FCC may not finish in time to be accounted as part of 2013, and that could have tax consequences, several brokers said. Sales of stations typically take 80 days after being filed with the FCC to resolve, making it unlikely that the commission would have time to approve such transfers before year’s end if the shutdown stretches well into October, said the brokers. Sellers trying to offset capital losses incurred in 2013 with capital gains on transactions they intended to close before year-end “may be really stuck,” Heymann said. Additionally, brokers don’t typically get paid until such transactions are complete. “So far it’s not critical,” said broadcast broker Brian Cobb, president of CobbCorp. “People are just waiting to file. But if they're not back in a couple of weeks, it might be time to panic."
It’s likely there aren’t many deals still unfiled involving participants counting on the deal finishing by the end of this year, said Cobb. Most such deals would have already been filed by the shutdown, and any that are affected likely involved parties that were aware of the possibility of not making the deadline, said Fratrik.
The filing problem affects both cable and broadcast transactions, but the DBS industry may not have as much of an issue, said Armand Musey, president of Summit Ridge Group. Since most satellite deals are “international in nature,” many actions in that industry won’t receive as much of an impact from the filing freeze, said Musey, whose firm values media, satellite and telecom assets.
M&A may be further delayed when the shutdown ends as the FCC tries to cope with a likely gigantic backlog, several brokers and analysts said. Musey said the communications industry may be slightly slowed down even after the shutdown ends because of the lack of access to FCC materials and personnel. “They're shutting down enormous parts of our ability to get planning done,” he said. Along with being unable to use the information usually readily available from the FCC website, it’s been harder for brokers and attorneys to get informal feedback on deals and proposals from FCC staff, which could affect future plans, Musey said.
Brokers and analysts said the inability to file was unlikely to have much of a substantive effect on deals getting done, since companies are free to negotiate with each other during the shutdown. It’s only the paperwork steps that can’t be completed. “I can’t picture someone saying they don’t want to do a deal because of the delay,” said Cobb. Fratrik said the shutdown is just a “momentary” impediment to mergers and acquisitions. “Deals don’t happen in an instant,” he said.