The Billboard Insider Podcast
00:12:46 · Dave Westburg, Paul Wright
[00:12:46] S0: Let's talk a little bit about multiples and what they might do at a recession. It seems multiples are at, oh, 10 to 12 times cash flow or EBITDA? And what do multiples do in a recession? [00:13:01] S1: Yeah. You are right. I think that our average is 10 and a half or 11. And in terms of revenue multiples, I think we're probably in the five to five and a half times range on average. There's a lot of things that affect that. But generally speaking, multiples will fluctuate during a recession. During the last recession, we actually saw a spike in multiples. We were looking at lower revenues, lower cash flows, and buyers were anticipating that to be a temporary thing. And so multiples looked high relative to revenue and cash flow. [00:13:43] S0: In other words, I may pay 15 times cash flow trailing twelve months because I know that based on recovering out of the recession, I'm really only gonna be at a nine or 10 times once the revenue's recovered and I'm coming out of recession. [00:13:57] S1: Exactly. And so it's a it's a little bit counterintuitive. Our clients come to us and say, well, you know, won't multiples go down? Actually, they go up, but that's... It's because there... There's a relationship there between cash flows and revenues. [00:14:12] S0: Mhmm. Paul, talk about the top drivers of an out of home company's value. In other words, you you say that values do vary quite a bit and various... Based on various factors. What are the drivers that may influence value?
00:14:12 · Dave Westburg, Paul Wright
[00:14:12] S0: Mhmm. Paul, talk about the top drivers of an out of home company's value. In other words, you you say that values do vary quite a bit and various... Based on various factors. What are the drivers that may influence value? [00:14:27] S1: One of the original staples of analysis or valuation has always been looking at lease costs, and that's still one of the primary drivers that we look at when we start to talk about what the value of a plant might be. We wanna know how much of that revenue is going to landowners in the form of lease payments. So that's a big issue. We're also looking at market size and whether you're in a major market or a top ranked market. There's 200 markets, generally speaking, that are ranked every year. If you're not in one of those top 200 media markets, then you're probably in what we consider a smaller or mid sized market. So we're looking at market size. [00:15:16] S0: Are those markets worth a turn or two less of cash flow? [00:15:19] S1: They can be. [00:15:21] S0: Yeah. [00:15:21] S1: They can be, but the caveat is that if you have a smaller market that's growing rapidly, then that can offset any size issue because there's a lot of growth and activity and development and changes going on that might create higher traffic volumes, opportunities for development because properties are being rezoned, new advertisers coming into the market. So growth can kind of offset that size issue. [00:15:54] S0: Paul, what about wood versus steel? Is a wood plant worth less than a steel monopole plant?
00:15:54 · Dave Westburg, Paul Wright
[00:15:54] S0: Paul, what about wood versus steel? Is a wood plant worth less than a steel monopole plant? [00:16:01] S1: It is, but oftentimes it's overestimated or a bigger discount is applied for wood. It is not the driving factor that a lot of people feel it is. Now if you're comparing apples to apples, you've got a wood plant in the same market on the same streets with the same roads, you might see half a point on maybe half to a quarter point on a revenue multiple. You might see half a point to three quarters of a point on a cash flow multiple. What we really start to do is look at the capital expense that might be involved. The CapEx on a plant that's wood and may may require some rebuilding or refurbishing might be a little higher. And so we've gotta factor that in, but it generally isn't isn't a driving factor in valuation. [00:16:55] S0: Paul, signvalue.com brokers out of home company sales. What pointers would you have for someone who's looking to sell their out of home plan?
00:16:55 · Dave Westburg, Paul Wright
[00:16:55] S0: Paul, signvalue.com brokers out of home company sales. What pointers would you have for someone who's looking to sell their out of home plan? [00:17:04] S1: Right. We do brokerage as well as valuation, and our in house broker is Carson Frost. Carson and I are constantly coming up with creative solutions to kind of navigate through deals and figure out how to solve problems. And maintaining composure and finding solutions is is generally the key to to getting deals done. Carson put together a great tip sheet on our website called maximize the value of your assets. And that's right on our website where you can download it for free. But some of those tips include getting multiple offers for your plant. And generally speaking, that means going out and getting a qualified broker to do the marketing and negotiations for you. Having multiple offers means that you can leverage those offers and eventually get the highest possible price. So I would definitely encourage plant owners to do that. Another one would be to kind of hyper organize your files, meaning dig in and make sure your financials are up to date. Go through your files and make sure all of your leases and your permits and your advertising contracts are organized. You wanna make sure that it's going to be very easy during the due diligence process to provide the information that you need to to the potential buyers. [00:18:32] S0: Which to me in this environment of online, that means setting up a Dropbox folder or another online folder where information is very easily accessible.
00:18:32 · Dave Westburg, Paul Wright
[00:18:32] S0: Which to me in this environment of online, that means setting up a Dropbox folder or another online folder where information is very easily accessible. [00:18:42] S1: Exactly. Those secure sites are are important. Then another one would be to go out and renegotiate any high rate leases. It's kind of like when you're buying a used car and or selling a used car and you're walking around and pointing out the dents and the dings and well, what about this and the tires? They need to be replaced. High lease rates are usually one of the key factors that we start to talk about when we're in the middle of a negotiation. And so they'll point out this site has a high lease rate, what are we gonna do about that, and do you think we can get that renegotiated? So that's one other item. And then finally, I would say... Well, two... A couple other things. One, we still have clients that are renting displays on a monthly basis instead of a four week period. And just converting that monthly ad contract to a four week period contract adds one period per year and can generate an additional 8% in revenue. So that's a selling point that you can either offer to a buyer or you can go out and start to convert those contracts before you take your signs to market. [00:19:56] S0: Mhmm.
00:19:56 · Dave Westburg, Paul Wright
[00:19:56] S0: Mhmm. [00:19:57] S1: And then finally, consolidating your footprint or expanding your footprint. And staying in your footprint isn't always the right idea, but if you want to grow organically and you want to maintain efficiencies, then look at your footprint. And are there stragglers? Are there signs that are outlying that you should sell? Or are there signs available to buy that would fit into your footprint nicely? So those are considerations that also kind of impact buying and selling decisions. [00:20:30] S0: Perfect. Now talk about how to value a billboard easement or a billboard lease. [00:20:38] S1: Billboard easements are the perpetual right, generally perpetual right, to go on a property and operate your sign. And so easements have three components. They have a utility easement, they have an access easement, and they have a visibility easement or area. And those things can be purchased in perpetuity. If there's a lease in place already, then we look at the income that's coming in off of that lease and capitalize that income into a value. The lease income is typically discounted a little bit for minimal expenses, management, accounting, legal, and maybe this new issue of taxes. But it's a pretty nominal reduction in income, maybe 8%, 10%. But then we capitalize that remaining net income into an indication of value so that we can come up with the value of the lease or the value of a perpetual easement.