Max Drachman is an outdoor advertising investment banker with Kalil and Co. Drachman talked with us earlier this month about outdoor values and trends in the transaction market.
What trends did you see in the transactions market in late 2015.
From our perspective, the end of 2015 was consistent with what we saw throughout the calendar year, which was very strong for Outdoor M&A. Multiples were still ranging between 8x-14x BCF (Billboard Cash Flow). We see those multiples tied closer to the quality of the Outdoor plant than the overall economy. We also had more calls than usual from Private Equity looking to enter the space during the fourth quarter.
We are concerned that the outdoor market is overheating and that seller expectations are getting unrealistic. What’s your take?
Great question. Again, I’m admittedly biased, but I do not see a general overheating in the market. Quality assets generated significant demand in 2015, just as they did in 2009 in the depths of the recession. The difference in pricing volume was tied more towards the decline in ad revenue than a decline in Outdoor multiples. So to answer your question, we still have many more buyers than sellers for Outdoor assets and I see nothing Outdoor specific that is going to change that now or in the near future. If something happened on a larger scale to the US economy, revenues could drop and debt financing could become harder to obtain which could lead to a decrease in the amount buyers could pay for assets (and therefore the overall pricing), but that is a risk faced by many businesses, not just Outdoor.
What have you been seeing as far as cellular revenue on billboards?
Unfortunately I have not seen very much of it. In theory, it makes a lot of sense to put cellular and other antennas on billboards due to their HAAT (height above average terrain) and locations in urban areas but I have yet to see a billboard operator generate significant income from them. I am not doubting the model, I just thought we would see more of it by now. I hear from lots of operators who sign master leasing agreements with independent “tower specialists” who promise lots of money by delivering cellular revenue on billboards. Unfortunately, after their agreement is signed, the billboard operator never hears from them again! I believe it would be helpful if one of the tower experts that reads Insider be interviewed to educate us on how and when this new revenue category may actually deliver for billboard owners.