The Billboard Insider Podcast
00:00:00 · Dave Westburg, Jim Johnsen
[00:00:00] S0: Hi. I'm Dave Westburg, and you're listening to Billboard Insider Podcast where I interview industry leaders about trends impacting The US out of home advertising business. This podcast is sponsored by the ultimate out of home sales guide, the book that gives you the tools you need to sell out of home effectively. Purchase your copy at billboardinsider.com/publications. I'm talking with Jim Johnsen, a managing director at the out of home investment banking firm, Johnsen Fretty. Jim has been an out of home dealmaker for twenty eight years and was instrumental in arranging the sale of some Indianapolis Billboards to my company in 2017. Welcome to the show, Jim. [00:00:36] S1: Thank you, Dave. Nice nice to talk to you today. [00:00:39] S0: Jim, let's start by reviewing the out of home transactions market. [00:00:44] S1: That sounds great, Dave. To maybe put a a slight bit of fun to it, I'll say it's all relative. And so so what I mean by that is the market is much better than it was in 1993 and 2009, but it's not as good as when it topped in the year 2000. But that aside, the market's healthy with lots of buyers and sellers at the moment. So I'd say on a scale of one to 10, it's somewhere between an eight and a half and a nine. [00:01:09] S0: Everyone always wants to know about multiples. Can you give us a sort of a range of what you're seeing multiples go for?
00:01:09 · Dave Westburg, Jim Johnsen
[00:01:09] S0: Everyone always wants to know about multiples. Can you give us a sort of a range of what you're seeing multiples go for? [00:01:16] S1: I love that question, Dave. I get that question every day, day in, day out. Yeah. And at the risk of being a bit evasive, when you say cash flow multiples, my first question back to the the questionnaire is always, well, tell me how you're going to define cash flow. And what I mean by that is we've gone from a world that was an average of three years three years EBITDA, that defined cash flow, to a world that went to TTM EBITDA to fast forward a world in which we're in now, which is billboard cash flow as best defined and negotiated between a buyer and seller. So [00:01:51] S0: And let's let's unpack that. [00:01:53] S1: Cash flow is is is is an elusive is an elusive term. And to to apply a multiple, one would need to understand exactly which cash flow we're pointing to first. [00:02:04] S0: Let's unpack that a little bit. Is Billboard cash flow... As I understand it, Billboard cash flow's revenue, less lease costs, less property taxes, less utilities. Is that Billboard cash flow? [00:02:15] S1: We generally include sales and marketing expense in there as well, Dave. And that and that has a tendency to be the the big fluctuator. Right? [00:02:24] S0: Yes.
00:02:24 · Dave Westburg, Jim Johnsen
[00:02:24] S0: Yes. [00:02:24] S1: Younger, earlier stage, smaller companies with less efficiency and scale have sales and marketing that could be running 20% of sales, where a Lamar or an OUTFRONT may have an all in sales and marketing budget of, you know, 10%, but look at incremental sales cost or incremental sales and marketing cost on a potential acquisition somewhere between, believe it or not, as low as 2% and as high as 8%. So that does have a tendency to fluctuate billboard cash flow. [00:02:56] S0: And if I had to take an over under, I would say in and out of a bunch of business cycles, if it... You know, maybe the the average sale might be 10 times billboard cash flow. It might be higher than that for a number of factors or lower than that or a number of factors. But would that be a fair kinda use 10 as the over under and over for a good plant growing rapidly under for a bill... A wood plant with, you know, few growth prospects? [00:03:24] S1: So if we were to agree on exactly what billboard cash flow look like right now and we were to agree on whether it was pro form a or it was it was run rate or it was trailing twelve month or whatever, I'd say, you know, somewhere between ten and thirteen times is where we're seeing things go off right now. [00:03:42] S0: Mhmm. [00:03:43] S1: But, again, you know, a disclaimer to the to the user of this information is, you know, we've sold things recently as high as 13 times pro form a [00:03:52] S0: Yes.
00:03:52 · Dave Westburg, Jim Johnsen
[00:03:52] S0: Yes. [00:03:53] S1: Which may, you know, which may, if you go back on the historical data, look like more... Like a 17 or 18 times purchase, but that's not the way the buyer was looking at it. [00:04:02] S0: So Who is most active in this current market? [00:04:05] S1: Oh, that's a great question, Dave. The the pool of buyers is better than I've ever seen it. Chase... For example, JCDecaux has stepped up for its first acquisition in The US [00:04:13] S0: after Yes. I saw that. Chicago. Correct. [00:04:16] S1: Correct. They were in in a joint venture with Interstate and, decided to... And then Interstate put their half on the market with a... With an interest in monetizing it, and, they ran it through a process. And I heard it was a very closely... A very close competition, but ultimately, JCDecaux inched out the other potential bidders for it and and stepped up and and made that acquisition. Not sure it's I'm not sure it's closed yet, but it sounds like a So, Dave, besides JCDecaux, you know, another surprising chain of events has has been that Clear Channel has been active of late. I think, you know, they've they've been on a long hiatus given their ownership by iHeart and then the spinout after iHeart and and capital capital constraints. It's good to see them back in the market. [00:05:06] S0: Mhmm. [00:05:06] S1: OUTFRONT has been selectively buying, and and, of course, Lamar has always been the perennial perennial acquirer. [00:05:13] S0: And Couple 100,000,000 a year, it seems like. Yeah. At least minimum, couple 100,000,000 a year.
00:05:13 · Dave Westburg, Jim Johnsen
[00:05:13] S0: And Couple 100,000,000 a year, it seems like. Yeah. At least minimum, couple 100,000,000 a year. [00:05:19] S1: Right. Right. Pretty consistently. And I believe when, the 2021 results finally fall in or the 2022 results fall in, you're gonna see that they've stepped up even a bit more from where they were. So... And then beyond that, you've got guys like New Tradition [00:05:33] S0: Yes. [00:05:34] S1: With their purchase of Regency and then a couple follow on transactions that they did with us recently. We closed a deal with Vector recently. Branded Cities is buying. Trailhead, MH, Keystone, McWhorter, Big Outdoor, Link, Adams, Lindmark, Las Vegas Billboards, Orange Barrel, Verde Outdoor, Azalea, Tier One, Creative, and, of course, a whole host of others. [00:05:57] S0: So, Jim, you might as well say, who's active? Everybody. [00:06:02] S1: The list of actives is is dramatically better than I've ever seen it before, Dave. [00:06:08] S0: Yes. Have recession fears and the public stock sell off impacted valuations? [00:06:13] S1: You know, I would say ever so slightly. We we see a... Just a slight bit more hesitation out of the buyer community, but but but, you know, the business is good. Balance sheets are strong. Debt is still available, albeit, you know, a bit more expensive. So, no, we haven't really witnessed too much of a tail off from recession fears. [00:06:34] S0: Jim, you see a lot of deals happen. What mistakes do sellers make when they sell?
00:06:34 · Dave Westburg, Jim Johnsen
[00:06:34] S0: Jim, you see a lot of deals happen. What mistakes do sellers make when they sell? [00:06:42] S1: Well, at the at the risk of sounding self serving, David, it would be not hiring an intermediary, not hiring an investment bank or a broker. [00:06:49] S0: Why is that a mistake?