The Billboard Insider Podcast
00:09:39 · Paul Wright
[00:09:39] S1: Well, the market is increasing in terms of values. We're seeing values rise, and it's primarily based on three things. There's really strong revenue growth. That's a little bit unusual that in the fourth quarter, had strong growth, and we're really watching this first quarter to see if that continues. Traditionally, the first quarter is pretty soft. It's winter, and people aren't out and about on vacations and things like that. So we're watching the first quarter really closely to see if the strong revenue growth continues. But I suspect that it is continuing. And it's likely because of the number two item, which is a shift in ad spend. We've always kind of suspected that advertisers were moving dollars from other media. But I think this is the first really clear sign that those dollars are coming from radio and television and newspaper pretty clearly coming from those other media types. And so we're really excited about what's going on and and we think it will continue. And this general enthusiasm will continue at least for this year and maybe into next year. There are a couple of things that are kind of lurking out there, and they're negatives that could impact values or slow down value growth. And one of those things is taxation issues that may start to creep up. There was a recent case in Pennsylvania that concluded that the value of billboard lease income to the landowner can be considered in assessing the value of that property owner's land.
00:11:27 · Dave Westburg, Paul Wright
[00:11:27] S0: Let's just hope, Paul, that that gets overturned on appeal at the next level because to the extent that suddenly a landlord's property tax is going up because of a billboard lease, gonna make that billboard lease more expensive to the billboard company. It's gonna make property owners more reluctant to engage in billboard leases. [00:11:47] S1: That's possible. And so landowners are watching that, sign owners are watching that, we're watching that obviously. I think that there's a tendency to overreact to that, and so we're not concerned too much. We think that it'll be a slow evolution and prices might rise marginally in terms of lease costs because of taxes, but we're watching that. And then the other thing is a recession looming. I think everyone knows that that's likely to happen in the next couple of years. There was a study just that came out of CEOs, and they all generally agreed that the fourth quarter of twenty twenty was probably the time when they would start to see a softening in the economy. So, you know, that's another year and a half out, and we don't think that's gonna be a really strong recession like we had last time. I think it'll be pretty mild. [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?
00:12:46 · 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.