Insider is listening on Friday morning to Federal Reserve Chair Jerome Powell give his strongest signal yet that interest-rate cuts are coming soon, saying the central bank intends to act to stave off a further weakening of the U.S. labor market. Of course, the overall economy is important, but the questions we asked Chris Stark and Craig Berry, of Stark Capital Solutions, were more focused on how the coming movement to lower interest rates might impact the OOH marketplace.
Looking ahead at interest rates, “certainty” is probably not the best descriptor. What is your sense of how interest rates might shift through the remainder of this year?
Correct! Normally predicting interest rates requires a bit of a crystal ball! However, the recent comments by the Federal Reserve Chair make it clear rate cuts are coming. In addition, long-term interest rates (like mortgage rates), are a good way to see what the investment community is betting will happen with interest rates over a longer period of time. The 15 and 30-year mortgage rates have both decreased since spring. The combination of Fed comments related to short term interest rates, along with the decreases in long term interest rates, are good indicators we are moving into a period of decreasing borrowing costs.
Higher interest rates has made for significantly less acquisition activity, in 2024. Does the trend continue into 2025, or do you see the M&A market turning?
2024 has certainly been a slower M&A year. We think the higher interest rates are only a part of the slow down. M&A activity requires both a balance of: 1) willing sellers and buyers, and 2) reasonably close value expectations between sellers and buyers. Higher interest rates has an impact on how much a buyer using debt to help fund acquisitions is willing to pay. This has created a mismatch between seller expectations and buyer’s willingness/ability to pay a high valuation. However, It also feels to us as if there was simply a lull in the supply of sellers. The past few years were very active M&A years. It is very possible that we are in a “re-loading” year of independent companies focused development vs. selling their assets. Based on conversations we are having with potential sellers as well as the better capitalized buyers, we feel 2025 will be more active than 2024 has been.
As the market starts re-engaging, choose a national, a regional and a smaller company you think might be best positioned for growth?
That is an interesting question. We feel it takes a combination of financial strength as well as strong management/infrastructure to be in a position for growth. Among the public companies it seems Lamar has both the financial strength and deep presence in the majority of US markets to support efficient and accretive growth. There are a number of local and regional operators that we work with who are also positioned well for growth. We see the majority of growth from the independent operators coming from organic new development vs larger acquisitions. We have a handful that we are financing that have solid sales and development teams in place and are gearing up for aggressive growth over the next year.
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