Max Drachman is an outdoor industry investment banker with Kalil and Co. I talked with Max this week about the outdoor advertising acquisitions market.
1. Paul Wright of Signvalue told me recently that outdoor values are hovering around 5.25 times net revenue and 10.5 times cashflow this year. Is this in line with what you’ve been seeing?
Paul is very bright and definitely in touch with the industry. His position is not inconsistent with what we are seeing, but there are a few things I would like to add. We have a very difficult time trying to make Outdoor valuation a science. For example, during the recession we sold a group of assets in a decent market for 15x BCF (Billboard Cash Flow). On the contrary, in a great economic climate, we still sell some assets for 8-9x BCF. We have now closed 12 transactions so far in 2015 and they all ranged from 8-14x BCF. While the 14x deal was a special situation, there were still three buyers within 5% of the final purchase price. In summary, the value of a billboard plant is tied closer to the quality of the assets than the greater economic climate.
2. What kinds of transactions go for higher multiples and what kinds of transactions go for lower multiples?
Right now, buyers seem to be gravitating towards marketshare. While larger markets are typically more attractive than smaller ones, buyers seem to be more focused on the percentage of the market revenue the individual seller is responsible for. Another important factor is the lease portfolio. Buyers want long term leases (or easements), with very few termination rights for the landlords (although in larger markets, they are becoming the norm). Finally, wood structures almost always trade for a turn or two less than steel monopoles.
3. What are the steps an outdoor company can take to increase value when it is preparing for a sale?
The company should focus on boosting revenue while cleaning up their lease portfolio. Keep in mind, if a seller goes from 70% occupancy to 100%, their multiple will likely go down (less upside), albeit the multiple may be on more cash flow. On the lease side, it is worth extending some of the leases that have less than 3-5 years remaining on them. Buyers like the security of a plant with a long runway on the leases. All things considered, the most effective thing a potential seller could do is hire a broker to market the property. Not only do we have access to more buyers, but what we have learned in doing this for a living will result in more money for our clients.
4. Describe an interesting transaction you’ve been involved in recently.
Confidentiality is very important to us. We cannot offer specifics on any particular deal, however I will mention we closed a deal recently that had Letters of Intent from twelve different potential buyers. Eight of them were in Outdoor already, and the other four we brought to the table were from other industries.
