IPO Report: Townsquare Media, LLC (TSQ)

Townsquare Media, LLC ($TSQ) is an integrated and diversified media and entertainment company that owns and operates market leading radio stations, digital and social properties and live events in small and mid-sized markets across the United States. It is headquartered in Greenwich, CT.

Ten other companies are scheduled for the week of July 21, 2014. The full IPO calendar is available at IPOpremium.

The manager and co-managers are BofA Merrill Lynch, Jefferies, and RBC Capital Markets. The joint managers are Guggenheim Securities and Macquarie Capital.

TSQ scheduled a $125 million IPO with a market capitalization of $252 million at a price range midpoint of $15 for Thursday, July 24, 2014 on the NYSE.  SEC filings

Townsquare Media IPO Report

Overview

TSQ is an integrated and diversified media and entertainment company that owns and operates market leading radio stations, digital and social properties and live events in small- and mid-sized markets across the United States, delivering national scale and expertise to the communities it serves on a local level.

TSQ is the product of a leverage buyout and is highly leveraged. The price-to-tangible book value is -1.1, very low.

There is an issue with 9.5 million warrants. If they are included on a fully diluted basis the P/E, based on 2013 results because the business is seasonal, is 24.4. If the warrants are not included in/for the market cap then the P/E is 15.6.

Pro forma for the Transactions, net revenue in 2013 grew 2.2% year-over-year and, excluding the effect of political advertising revenue, grew 4.7% year-over-year.

Valuation

Glossary

Conclusion

The rating on TSQ is neutral.

Business

TSQ is an integrated and diversified media and entertainment company that owns and operates market leading radio stations, digital and social properties and live events in small and mid-sized markets across the United States, delivering national scale and expertise to the communities it serves on a local level.

TSQ’s integrated and diversified product and service offerings, which it refers to as Townsquare Everywhere, enable local, regional and national advertisers to target audience engagement across multiple platforms, including on-air, online and at live events.

For national advertisers, TSQ supplements its local offerings with the nationwide reach of its owned, operated and affiliated music and entertainment websites, which, on a combined basis, attracted approximately 78 million U.S. based unique visitors in March 2014 as well as certain larger scale live events.

TSQ’s Townsquare Everywhere capabilities, combined with its leading market position in small and mid-sized markets, together enable it to generate higher total revenue per audience member than radio station owners focused on larger markets.

Townsquare offers its audience original entertainment, music and lifestyle media experiences that connect them with content they love, people they trust and products they want.

Financial summary

In the year ended December 31, 2013, pro forma for the Transactions, the Company recorded $345.1 million of net revenue, $17.3 million of net income and $94.9 million of Adjusted EBITDA excluding duplicative corporate expenses.

Pro forma for the Transactions, net revenue in 2013 grew 2.2% year-over-year and, excluding the effect of political advertising revenue, grew 4.7% year-over-year.

In the year ended December 31, 2013, on an as reported basis, the Company recorded $268.6 million of net revenue, $10.1 million of net income and $62.2 million of Adjusted EBITDA, which represented 20.6%, 58.0% and 20.0% year-over-year growth, respectively. In the year ended December 31, 2012, on an as-reported basis the Company recorded $222.7 million of net revenue, $6.4 million of net income and $51.9 million of Adjusted EBITDA.

In the three months ended March 31, 2014, TSQ derived approximately 26% of its net revenue from sources other than the sale of terrestrial radio station advertising.

TSQ refers to this revenue as non-spot revenue. As of March 31, 2014, TSQ had $645.0 million of outstanding indebtedness, substantially all of which was incurred in relation to the Transactions.

As of March 31, 2014, after giving effect to this offering and the application of the net proceeds, together with cash on hand, TSQ would have had approximately $485.3 million of outstanding indebtedness.

Dividend Policy

No dividends are planned.

Competition

TSQ’s radio stations compete for audiences and advertising revenue directly with other radio stations within their respective markets as well as with other alternative mediums including satellite radio, television, print and digital media. Additionally, new online music services have begun to sell advertising locally, creating additional competition for both audience and advertisers.

By building strong brands with a targeted audience consisting of specific demographic groups in each of its markets, TSQ is able to attract advertisers seeking to reach those particular audiences.

5% stockholders

Oaktree 94.6% (Class A shares)

Use of proceeds

TSQ intends to use the $113 million in proceeds (along with cash on hand) from its IPO as follows:

to repay its outstanding 10% Senior PIK Notes due 2019, to repay approximately $128.6 million of the outstanding term loans under its Senior Secured Credit Facility. TSQ’s 10% Senior PIK Notes due 2019 were issued on November 14, 2013 to finance the Cumulus II Transaction.