Univision Owners Exit After 14-Year, Money-Losing Buyout Debacle
(Bloomberg) -- The sale of Univision Communications Inc. on Tuesday caps a 14-year, money-losing saga for its private equity investors, who bet big on the Spanish-language broadcaster just ahead of a recession and the decline of the television industry.
After the deal, Univision will be valued at less than $10 billion including debt, a far cry from the $13.7 billion at the time of the leveraged buyout in 2006 when broadcasters -- not yet damaged by cord cutting and the streaming era -- were a major prize.
The sale marks one of the biggest busts from private equity’s so-called golden age -- a period from about 2005 to 2007 when buyout shops paid steep prices for big, publicly traded companies. The Univision deal fit the mold perfectly, with the private equity buyers paying an above-average 16-times cash flow just months before the start of the global financial crisis.
Saban Capital Group and four other firms -- Madison Dearborn Partners, TPG, Providence Equity Partners and Thomas H. Lee Partners -- pulled off one of the media industry’s biggest-ever leveraged buyouts to acquire Univision. Along the way, they beat out KKR & Co. and Latin America’s largest TV broadcaster, Grupo Televisa SAB, in a heated takeover battle.
But exiting the investment has proven more difficult. After a decade that included slipping ratings, a scrapped IPO and strategy shifts, former Viacom Chief Financial Officer Wade Davis and Searchlight Capital finally agreed to buy a majority stake in Univision in a deal announced Tuesday.
Though the terms of the transaction weren’t disclosed, the new owners are contributing about $800 million for 64%, valuing the company at less than $10 billion including debt, people familiar with the matter said.
Univision’s previous owners are splitting just $800 million, a fraction of the $3.9 billion in equity that the group committed more than a decade ago, when Saban contributed $250 million and the four other firms each put in about $900 million.
Private equity firms, which make money by charging management fees to investors in their funds and taking a share of profits when they exit the assets through a sale or IPO, typically aim to double their money over about a three- to six-year period.
In an interview Tuesday, Davis, 47, said he would focus on reducing Univision’s debt load. He also touted his seven years of experience as finance chief at Viacom, where he oversaw targeted advertising products and the acquisition of Pluto TV, an ad-supported streaming service.
There’s still a huge market for Spanish-language programming in the U.S., Davis said.
“Language is incredibly relevant to them from an identity standpoint, from a cultural standpoint,” he said. “And I do think in totality, this audience prefers watching content in Spanish.”
Even getting to this point of vastly reduced valuation expectations has been a struggle. Univision was put up for sale multiple times, and previous bidders backed out.
The broadcaster’s former CEO, Vincent Sadusky, even made a high-pressure pitch to potential buyers during an earnings call last year: “You’ve got to give this thing a good hard look,” he said. “If you don’t execute on that opportunity, I believe the opportunity is lost forever.”
Univision was less of a hard sell when it was put on the block in 2006.
The company, which began in 1961 with a lone TV station in Texas, at one point commanded 80% of the Spanish-language media market. With the U.S. Hispanic population booming, success seemed guaranteed.
To acquire the business, Saban’s group had to fend off deep-pocketed bidders. That included Emilio Azcarraga, the owner of Televisa, whose grandfather had founded Univision. But some of Televisa’s own private equity backers dropped out at the last minute, helping hand victory to the Saban-led team.
The process was so fraught that Univision shareholders sued the company, alleging it gave preferential treatment to the group because it was led by Haim Saban, then Univision’s chairman and CEO, who once described himself as “just an ex-cartoon schlepper.” (Saban made his initial fortune on the success of the kids show “Power Rangers.”) Their efforts to block the deal failed.
The buyers clinched the deal in June 2006 and completed the acquisition the following March, loading up Univision with $10 billion in debt. But the headaches for Univision’s owners were just beginning.
A recession began at the end of 2007, followed by the global financial crisis. Advertising budgets contracted, sapping Univision’s revenue.
The share of the U.S. population born in Mexico peaked in 2007 and then began dropping. That took a toll on ratings growth.
Televisa, meanwhile, remained interested in a deal. In 2010, Televisa bought a 5% equity stake and debt that could be converted into an additional 30% holding. It paid about $1.2 billion.
In 2015, Univision and its investors were optimistic about an exit -- and even one at a profit. They hired underwriters for an initial public offering to raise around $1 billion, aiming to value the company at more than $20 billion, including debt.
Hoping to move beyond Spanish-language programming, Univision bought the former Gawker Media websites for $135 million in a 2016 bankruptcy auction. But the company struggled to get a return on its English-language online properties and sold them -- along with the Onion the satirical website -- to Great Hill Partners last year.
In 2017, it spurned a $13 billion-plus offer from Discovery Communications. A year later, it scrapped its long-dormant IPO plans.
Univision faced more turmoil before putting itself up for sale again in 2019, when it announced it had hired advisers. One threat came from its rival, Telemundo, which gained financial resources under the ownership of Comcast Corp., enabling it to compete fiercely for ratings and snatch away the World Cup rights.
To get in better shape, Univision has tried to modernize its programming, which once leaned heavily on soap operas known as telenovelas. To expand its soccer offerings, it acquired the rights to the popular UEFA Champions League.
But for nearly nine months starting in 2018, Dish Network Corp., the satellite-TV provider, refused to carry Univision’s networks, depriving the company of lucrative subscriber fees. Though that dispute is now resolved, the rise of cord cutting has made negotiations with pay-TV companies more tense. That will make restoring Univision’s former glory all the more difficult.
Davis said Tuesday that Univision has secured distribution deals with all of its major pay-TV distributors “for multiple years going forward.”
He also said the company could expand its streaming ambitions.
“From a competitive standpoint, the marketplace is wide open,” he said. “The community does need a service that’s at-scale, differentiated and relevant.”
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