Borrowing an idea from its New Vision portfolio investment, Arlington Capital Partners recycled the model it established for the network television platform to set up a new radio platform, which it will use to acquire small-market radio stations throughout the Western United States. The firm tapped industry veteran Joe Schwartz to head the platform, known as Cherry Creek Radio, which has already acquired Commonwealth Communications in a $41 million deal.
Arlington was looking for a top-tiered, small-market company that had a variety of formats and a lengthy reach across the western markets when it chose Commonwealth to anchor its platform. “This is a terrific entry point. It has a strong variety of stations and also maintains a number one radio cluster across eight of its nine markets, which is critical to advertisers and very important from a pricing standpoint,” Steiner said. Through its purchase of Commonwealth, Cherry Creek now operates 24 stations in nine markets across California, Washington, Montana, Arizona, Colorado and North Dakota.
As for its investment model, Cherry Creek is certainly resembling New Vision. Perry Steiner, a principal with the Arlington, said, “We started working on the radio industry a year ago and we hope to leverage off of our success with New Vision, but the companies are very much separate and we would never envision combining the two. We think the timing is right for these advertising based business models.”
To finance the Cherry Creek purchase, Arlington contributed a little more than $20 million of equity, with CIT Business Credit supplying the rest via a senior debt facility. The equity came from the firm’s $452 million Arlington Capital Partners fund, which according to Steiner, is about half invested. For the platform, Arlington has committed a total of $40 million and will look to make acquisitions that range from $1 million to $5 million or from $10 million to $15 million, depending on the company’s size.
Arlington’s investment thesis for its Cherry Creek platform runs parallel to its New Vision investment in that they both target smaller markets which management teams should be able to have a large affect on. Also, as with New Vision, Cherry Creek will look to take advantage of any synergies that present themselves from any add-on deals, and both businesses are poised to take advantage of any uptick in advertising rates, which the firm believes have hit the floor.
However, Steiner said even as advertising is “at or near a cyclical low,” the investment is not predicated on this. “We’re not making a bet on that,” he said. “This investment relies on strong management and its impact on the business. It will certainly help if we can get some wind at our backs [in the form of improvements in advertising], but that’s not what this investment is based on.”
Joe Schwartz, who was picked to head the company as CEO, has 25 years experience in media, having manned senior operating posts at Emmis Communications and Saga Communications. Schwartz also has experience as president of Bengal Communications, which owned and operated several radio stations encompassing a number of western markets. Schwartz will be replacing 60 radio personalities and former Commonwealth head Dex Allen as CEO of Cherry Creek.