CR Media Radios In E11.5 Million And Preps Series B Offering

Hoping to ride the radio waves to stellar returns when the global economy finally emerges from the foggy shrouds of recession, Baring Private Equity Partners late last month anted up E11.5 million ($10.19 million) for Polish advertising broker CR Media Sp. z o.o.

With the ink barely dry on the term sheets from its first deal, however, Warsaw-based CR Media is already poised to hit the venture capital circuit with a second offering early next year.

Baring, the Series A transaction’s sole investor, plans to re-up in round two, and hopes to bring in at least one other third-party backer, said Jacek Pogonowski, a partner with Baring’s Central European Fund. CR Media is seeking to draw $10 million to $12 million from the private equity well for its next financing, which is expected to close by mid-2002.

The company intends to use the proceeds from both transactions to acquire between 20 and 30 local, privately held radio stations throughout Poland in an effort to build the second or third largest radio broadcast holding company in the nation.

The acquisitions indicate somewhat of a shift in strategy for CR Media, which has been buying national radio airtime and ad space for large advertising agencies since its inception in 1996.

That’s not to say that the company plans to abandon the media brokerage business completely, however, nor does it imply that CR Media isn’t doing well, Pogonowski said.

Indeed, the company posted gross sales revenue of E32 million ($28.3 million) in 2000, and is expected to do at least that this year.

But local radio advertising tends to be a lot more resilient than national accounts before, during and after a recession, Pogonowski explained.

“Local radio relies on local businesses such as restaurants and gas stations for advertising, and they don’t cut advertising spending as much as large global accounts [during rough economic times],” he added. “Although the advertising market has obviously suffered in the last year, statistics in Poland show that local radio advertising declined much less than average.”

What is more, local radio is much more diversified than Polish national radio, which is basically dependent on large, key accounts. If those advertising clients lose money, as many large corporations in Poland and other countries have, the first thing to go is their ad spending, which in turn hurts the stations’ bottom lines.

And radio in Poland has slowly been coming into its own since about 1990, a trend Pogonowski expects to continue, especially once Poland joins the European Union.

CR Media, which operates most of its radio activities through a subsidiary called Ad.point Sp. z o.o., has already received regulatory approval for the acquisition of Radio Flash, based in the Polish city of Katowice, and Radio Wa-Ma, based in Olsztyn.

While a majority of the acquisitions will likely be cash transactions, some will be a combination of cash and stock swaps, and still others will be done with stock alone. In fact, CR Media acquired its first two targets through a straight share-for-share swap.

Although CR Media currently is profitable, Baring expects its balance sheet to fall into the red next year, as the company will likely lay out a significant amount of cash to obtain broadcasting licenses for all of its newly acquired stations, Pogonowski said.

Still, he said he doesn’t expect the company to need a third round of private financing.

“The management team is quite effective at turning around less-than-profitable companies to cash flow break even and cash positive quite quickly,” Pogonowski said. “If you can get a radio station into cash positive territory quickly, it can usually become a pretty nice cash generator.”

CR Media’s founder, Jan Ryszard Wojciechowski, and his family will remain the company’s principal shareholders.

Robyn Kurdek can be contacted at:

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