Benchmark Agrees to be Acquired

Baltimore-based radio company Benchmark Communications will announce today that it has agreed to be acquired by a Dallas merchant banking group for $173 million. Benchmark’s 32 radio stations throughout the Southeast will be sold to Capstar Broadcasting Partners, a holding company set up by the investment firm Hicks, Muse, Tate & Furst, Benchmark general partner Bruce R. Spector said yesterday.

Benchmark owns two stations in Maryland, both in Salisbury: country station WWFG-FM and modern rock outlet WOSC-FM. Eight people work in the chain’s Baltimore headquarters, which will continue to run the company’s stations, and 29 work in Salisbury.

The deal, which is expected to close in June, will give Capstar a total of 103 stations. It wants to build a network in midsized markets, and has announced plans to spend $550 million on radio station acquisitions.

The 5-year-old Benchmark had hoped to find a merger partner about its own size and then take the merged company public. But a weak market for radio stocks in the second half of 1996 held down the price Benchmark could expect in an initial public offering.

Another factor weighing against an IPO was a federal regulation U that would have required the existing owners of Benchmark to hold their shares for two years after an offering, Spector said.

While the company mulled its future, Capstar approached Benchmark and, after initial resistance, made its offer too attractive to refuse.

“The radio stocks have been trading down since June, when we put the [IPO] plan together,” Spector said. “The best we could do was [sell shares for] 10 times our annual cash flow.”

The sale price works out to 12 times Benchmark’s annual cash flow, Spector said. “Economically, it became a clear choice about what was better,” he said.

Cash flow is the company’s profit before payments on its debt and noncash charges such as depreciation. Benchmark’s cash flow is about $14 million annually, Spector said.

Radio stocks in general had been beaten up after the news in June that Westinghouse Electric Corp. would acquire Infinity -Z Broadcasting Corp.

That deal sparked fears that the U.S. Justice Department might stop mergers that threatened to give a single company control of more than half of the radio advertising market in a given city, Spector said, and let the air out of radio stocks that had been bid up in anticipation of more mergers.

But industry experts said Benchmark had its individual problems as well.

The company did not own enough stations in most of its markets to become the dominant player in local radio advertising, one competitor said privately, and not everyone was sold on the potential of smaller Southeast markets such as Montgomery, Ala., Greenville/Spartanburg, S.C., and Jackson, Miss., where Benchmark’s stations are concentrated.

But that did not deter Capstar, a company Hicks Muse set up in May.

Capstar officials could not be reached for comment yesterday, but the company already has a lock on a handful of stations in southeastern markets like Jacksonville, Fla., and Raleigh, N.C., thanks to earlier deals, and pursued Benchmark in a bid to build up its presence in the Southeast.

“They’re going to be the middle- and small-market radio consolidators from coast to coast,” said Joseph L. Mathias IV, Benchmark’s other general partner. “They’re really the radio Wal-Mart. These guys have the capital to be the leading radio operator in smaller towns and cities across the U.S.”

Nonetheless, one leading radio-industry observer called the deal a surprise.

“The reason I’m surprised is that I thought they had done a very good job positioning themselves as an independent player,” said James H. Duncan Jr., publisher of Duncan’s American Radio Inc., an Indianapolis-based industry trade paper. “It must have gotten to the point where the amount of money being offered was irresistible.”

Duncan said the price was above average for a small-market deal. But he said it was not out of line because Benchmark stations serve several fast-growing regional markets.

Benchmark was built by Spector and Mathias, who previously worked together at a cable television company. The pair began buying radio stations in 1990 and formed Benchmark in 1991.

Spector declined to say how much money Benchmark and its limited partners, several of them investment bankers at Alex. Brown Inc., made on the sale. He said Benchmark had little debt because its owners financed Benchmark’s growth mostly with their own money and by investing profits from some stations in buying new outlets.

Benchmark had previously sold two Virginia stations, in Richmond and Norfolk, for about $30 million.

All but one of Benchmark’s Maryland-based employees — Spector himself — will stay with the company. Mathias will be president of Benchmark as it becomes a Capstar subsidiary. “I’m going to be going forward with the company and I’m glad about that,” he said.

Spector said he would consider other investments in telecommunications businesses.

“I’m not a broadcaster, I’m an investor,” the lawyer-turned-entrepreneur said. “I think it’s time for me to invest in another industry.”