Gabe Oliverio on Asset Swaps

Insider caught up with Gabe Oliverio, Managing Director at outdoor investment banking firm Johnsen, Fretty & Co., about a swap transaction announced last week involving Independent Outdoor Network (transaction press release here). You can contact Gabe at goliverio@jfco.com.

Tell us about the transaction and how you were involved.

Interestingly, the transaction involved a swap of big market assets for smaller market assets, which you typically don’t see. JFC initiated this transaction and advised Independent on its side of the deal.  Independent operated a number of terrific, high-profile digital bulletins in the Boston DMA.  In exchange for its Boston assets, Independent acquired several hundred bulletin displays across six states—Wisconsin, South Carolina, Georgia, Tennessee, Illinois, and Missouri.

Why would Independent pursue such a deal?

Yes, the markets are certainly smaller than Boston but with this swap Independent acquires footholds in DMAs like Milwaukee, Green Bay-Appleton, Madison, Greenville-Spartanburg-Asheville-Anderson, Columbia, SC, Myrtle Beach-Florence, Chattanooga, St. Louis, and Springfield, MO, among others.  These are dynamic markets with some really great opportunities for digital conversions, new billboard development, and acquisitions. Also, the client profile of local and regional advertisers better fits the Company’s business model. Independent goes from being a regional player in New England to operating over 1,000 displays in the Northeast, Southeast, and Midwest. They’re now a real sizable player in the OOH industry.

What are the benefits of pursuing a swap transaction?

JFC has advised on several swap transactions over the years, though this is the largest.  We’ve worked on deals that are pure like-kind exchanges, as well as more complex, hybrid deals where consideration paid to the client takes the form of cash plus billboard assets.  Our clients typically find themselves in positions where they have assets that are outside their operational and/or investment profile and would like to find a way to unwind them. More often than not, when clients are faced with those situations, we are brought in to sell those assets for cash.  Generating cash can be a great outcome but we also encourage clients to explore swap opportunities, if nothing else for the tax advantages.  When we have done swap deals in the past, it’s amazing how often both parties extract better performance from the assets they acquire in the swap, respectively. Both parties usually end up saying, ‘I wish I had done this sooner!’

What are the challenges of pursuing a swap deal?

In certain respects, the deal takes on added complexity since valuing billboard assets is more subjective than valuing cash. The complexity quotient also increases to the extent that a transaction involves a combination of cash and assets.  Beyond that, finding someone who wants to trade assets with you is often challenging.  That being said, certain deal components can be simplified in a swap transaction. For example, in cash-for-assets transactions, one of the main negotiating sticking points between buyers and sellers are representations and warranties.  When parties are swapping like-kind assets, however, these provisions tend to be reciprocal so there is less tension between the counterparties. There becomes an “if it’s good enough for you, it should be good enough for me” mentality on both sides.

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