Sirius XM Radio (Nasdaq: SIRI) is shopping around for something to buy, reluctantly.

"We continue to look at acquisition opportunities as they arise," CEO Mel Karmazin said during yesterday's conference call.

Sirius XM bumped its free cash flow guidance higher after another strong quarterly outing and now expects to close out the year with roughly $750 million in the bank.

"Accretive acquisitions that benefit our shareholders would be the first priority for our free cash flow," Karmazin added, though it's clear from his tone that he would prefer to simply use excess greenbacks to buy back shares as a way to eat into Sirius XM's hefty diluted share count of 6.8 billion.

Finding the right company -- or companies -- to buy would be better, though.

It's true that Liberty Capital (Nasdaq: LCAPA) has a preferred share stake in Sirius XM that can be converted at any time to a 40% position in the satellite radio giant. This is baked into the 6.8 billion share figure now that Sirius XM is profitable, and it also weighs heavily whenever Sirius XM issues new shares as compensation or for debt repurchases.

However, Sirius XM also has billions in net operating losses it can use to offset future taxable liabilities. If Sirius XM can snap up a small yet profitable company, it will provide a bigger bang for its after-tax buck than it would for a buyer without this juicy break.

Unfortunately, the music industry is a fiscal wasteland. Sirius XM may have to reach a little outside of the usual suspects to make this work, but let's go over a few of the obvious and not-so-obvious buyout candidates.

Pandora (NYSE: P)
Pandora is mistakenly referred to as Sirius XM's biggest threat now that a couple of automakers have made it easier to stream the music-discovery site directly from the dashboard, but that's not the only reason why Pandora would be a bad fit here.

Pandora won't be profitable for a couple of years. With 161.9 million shares outstanding, it's also a company that Sirius XM can't afford unless it wants to leverage itself further or wait until Pandora falls to the low single digits.

Nabbing Pandora would fortify the personalization features Sirius XM plans to roll out on its new receiver platform next year, but promoting the value proposition of the largely free ad-supported streaming service would be counterproductive to its long-term goals.

Napster
Best Buy's (NYSE: BBY) Napster hasn't made a lot of noise as a premium music subscription service in recent years. The same can be said for Rhapsody, Zune Pass, and other rock camp pretenders that have tried to get folks to pay roughly as much as a Sirius or XM subscription for streaming access across several devices.

Spotify's $10 a month mobile streaming plan is the only one worth watching these days, but sadly Spotify is also likely out of Sirius XM's price range.

Napster or Rhapsody would come cheap, and Sirius XM could market the service as a premium add-on to its 21 million subscribers. The purchase would also help bridge any potential technological gap Sirius XM may be facing as it aims to compete with other premium streaming sites. Neither company is likely profitable, but nothing that Sirius XM's extended marketing range can't fix.

Entravision (NYSE: EVC)
The programming emphasis of Sirius XM 2.0 -- which will allow the satrad star the ability to expand its channels by 25% -- will be content for Latinos. Entravision is a niche leader with dozens of television and radio stations.

Entravision's enterprise value of $500 million would make this a hefty buyout, but it's a better fit than you think when you consider that Sirius XM will be able to populate its new channels with proven content and market the platform upgrade to its target audience.

Oh, and at least Entravision is slightly profitable.

Quepasa (AMEX: QPSA)
Another way to reach Hispanic audiences would be through the operator of the Quepasa.com social networking site for Latinos. Quepasa's recent move to acquire myYearbook was a smart one, and it would give Sirius XM healthy exposure to a fast-growing site that revolves around social gaming.

SRS Labs (Nasdaq: SRSL)
There aren't too many audio technology companies that are growing, profitable, and won't break Sirius XM's bank, so let's wrap up this shopping list with SRS Labs.

SRS offers audio solutions through advanced audio enhancement, voice processing, and surround sound technologies. Is it as good a tactical fit as the other companies? Not necessarily, but it's easy to see a symbiotic relationship materializing over time.

The important thing here is that Sirius XM exhaust all buyout possibilities before making what would only be a small dent in its diluted share count.

Karmazin may be a reluctant shopper, but it's the right move given Sirius XM's chunky net operating losses and its sluggish organic top-line growth.

What should Sirius XM do with the $750 million it is expected to have by year's end with no major debt repayments coming up next year? Share your thoughts in the comment box below.