On this week’s Billboard Insider podcast private equity investor Ken Anderson talked about why he likes out of home and mistakes out of home entrepreneurs make when approaching private equity investors.

How do you evaluate the strengths and risks of out of home from an equity perspective.

We like the industry from a number of aspects.  Number one…when I ride around someone’s billboard plant it comes home to me that these are essential utility assets…In the case of our Pensacola/Mobile/Montgomery deal we just did we ended up with 20 sites with about 38 faces and each of those sites long term leases or we own the ground under that…Those are important structures, especially the digitals we bought, important communications structures that will always be a part of those communities.  I just get the feeling it’s like when I looked at the cable wires on the streets that we owned or the twisted pair telephone plant or the towers…those are solid things that will always be a part of that community…And the fact outdoor is a very effective advertising medium…Probably the best ad for the outdoor business is probably the fact that the major tech companies in the world are also major advertising users of outdoor…

Cyclicality

This is our first deal in outdoor right in the teeth of covid.  I met our operating partners Jesse London right at the outbreak…It gave us great pause…we adopted a strategy of trying to have the closing be as long from now as we could.  So we would see as many months of rebound or activity as we could…What’s really interesting is that while national and big market players were getting pummeled.  I’ve talked to guys who are 50-80% off…In our case, in the five deals that we’ve…rolled up…we actually are a few points up year to year…Our local stuff has held up in these markets and I read in Billboard Insider that it’s help up in other markets too.

What made you want to do business with Jesse London and TierOne Media?

He’s the kind of personality that you just know is very capable.  He comes off very knowledgeable and very personable…He’s a solid guy with good business savvy…30 years of experience of successfully selling outdoor for some of the biggest companies in this country…

What sort of due diligence did you do when evaluating the investment?

We looked at three years worth of tax returns. We looked at three years worth of sales results by customer…In our case where we have real estate in 20 different locations in two states and in multiple counties…there really is a lot to getting one of these businesses bought…We’ve seen the exact locations.  We’ve seen how this street or this highway intersects with that.  We’ve seen the number of businesses around.  You can’t substitute for that.

What common mistakes do out of home entrepreneurs make when they approach you for equity funding?

Not having enough respect for the price we have to pay.  There’s no bigger error you can make than by overpaying…If you’re going forward from a situation where you’ve overpaid for the asset you’ve really got one are tied behind your back…Price can get ameliorated by a couple of interesting things.  (1) We had to pay a high price but we got favorable terms from the seller…(2) To have a really good…upside.  So for instance in our case in the Pensacola area here…we paid a good price, full market price, for the assets…but we picked up about 20 permits…In the case of what we paid per sign we paid about $450,000 per sign which equates to about $225,000 per face.  However, we got enough new permits where we could double the size of the company.  Put our capex to double the company is only going to be about $75,000 per face…Now we’re into a 40 sign deal in a couple years where our average price going in was only $150,000 per sign.

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