Jim Johnsen, a managing director at Johnsen Fretty, says the buyer pool for out-of-home assets is the best he has seen, with deals clearing at roughly 10 to 13 times billboard cash flow.
Johnsen rates the current out-of-home transactions market 8.5 to 9 out of 10, below the 2000 peak but strong, with recession fears only slightly denting buyer appetite.
Johnsen advises sellers to hire an investment bank to make a market rather than just find a buyer, and to clean up leases, easements, invoices and paint before going to market.
Billboard deal market nears its peak as buyers crowd in
Out-of-home deal-making is near a cyclical high, with the strongest pool of buyers Johnsen has seen in 28 years. Strategic buyers are competing alongside Lamar and lenders are plentiful. Sellers who prepare well and run a real process can command 10 to 13 times cash flow, provided both sides agree on how cash flow is defined.
Takeaways
Billboard M&A sits near a cyclical high. Johnsen, a dealmaker for 28 years, rates the market 8.5 to 9 out of 10. It is far better than 1993 or 2009 but short of the 2000 peak. Recession fears barely slowed buyers because balance sheets are strong and debt remains available.
Ten to 13 times cash flow, defined carefully. Cash flow now usually deducts sales and marketing expense, about 20 percent of sales at small operators versus 10 percent at Lamar or OUTFRONT. A recent sale at 13 times pro forma cash flow could look like 17 or 18 times historically.
The buyer pool is the deepest ever. JCDecaux made its first US acquisition, buying Interstate's half of their Chicago joint venture. Clear Channel is back after a hiatus, OUTFRONT buys selectively, Lamar spends about $100m yearly, and New Tradition bought Regency, Vector, Branded Cities and many smaller firms.
Lenders are abundant, but local banks may flee. Westburg says there have never been more out-of-home debt providers. Regional and local banks lend on relationships, and Verde and Alaris Financial fund loans above about $3m. He warns community banks will exit in a recession, as in 2009.
Private equity struggles to find enough scale. Johnsen gets three or four PE calls weekly, but most firms want $50m to $100m cheques, so some are moving toward companies with $1 to $2m of EBITDA. A SPAC needing $400m to $500m on day one proved nearly impossible.
Billboards are poor passive income. Johnsen suggests passive investors buy Clear Channel bonds instead, and Westburg points to Clear Channel and Lamar stock. Westburg says billboards do not sell themselves and he cannot name anyone who took a passive approach and thrived.
How to sell a billboard business
Hire an investment bank to make a market among competing buyers. The banker acts as a shuttle diplomat who earns buyers' trust and prevents misunderstandings.
Clean up leases, easements, invoices and paint before going to market.
Players and ideas to watch
Ross Reilly, likely Lamar's next CEO in Johnsen's view, is a great pick.
OUTFRONT's MTA subway contract sells whole stations to one advertiser. Ridership remains more than 50 percent below pre-COVID, but revenue is recovering faster.
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On this episode 2
Show 1
Johnsen calls Clear Channel's assets a Tiffany collection, though Westburg says its European arm takes 35 to 40 percent of capex, holding back US growth.
Adams Outdoor would fetch a super premium, and Orange Barrel has a stellar reputation with customers, landlords and municipalities.
Johnsen wants outdoor companies to appoint chief content officers, since the industry has the biggest megaphone yet mostly sells space.