One in four Billboard Insider readers have acquired billboards in the past year  year and one in four Billboard Insider readers plan to make an acquisition in the next year.  How do you make money when you buy a billboard?  There are three ways.  None of them are easy.

Increase revenues

Get more revenue out of the seller’s assets than the seller did.  This is the easiest way to increase value.  Billboard Insider asked Chris Hillard of Legacy Outdoor how he makes money in out of home acquisitions and he said this:  “Vacancy…because you can pay 8/10/12 times cashflow if they’ve got high vacancy so you’ve got room to move…Rates is another big one.  If you can if you can figure out the rate structure and move it up 20-30% all of a sudden the 10 times acquisition becomes 5 or 6 times.”  If you have more national sales contacts or a great local sales force this makes sense.  An acquisition can also help your company increase revenues if it fills in holes in your market coverage.  Let’s say you have a billboard plant which covers the north, south and east sides of a community.  If you buy assets on the west side of the community your sales force will be able to offer ad clients seamless coverage throughout the community which should allow you to charge higher rates and generate more revenue.

Cut expenses

Operate the acquired assets at a higher margin than the seller.  This is extremely hard to do.  The problem with this is that most billboard companies trade at billboard cashflow (revenue less lease costs less imputed sales costs less direct billboard expenses).   Billboard cashflow by definition leaves out a lot of overhead.  That leaves few expenses which you will to cut.  Leases are are the biggest single expense but most leases are long term contractual relationships.  Reducing lease rates is like pulling teeth.  It’s possible but a lot of pain.  Maybe you can pay your sales force lower sales commissions than the seller does but don’t count on it.  If the billboards are old,  you’ll be able to cut utility costs by installing better lights but lighting costs are only a small portion company’s direct billboard expenses.  Cutting expenses to create value in an acquisition is hard.

Buy low and sell high

Buy low and sell high.  If you are Lamar and your stock tradeds at 17.8 times cashflow your can buy out of home assets at less than 17 times cashflow then that you create value.  It’s much harder for a private company.   You can’t assume that you’ll buy something for 10 times cashflow and that it will immediately be worth 12 times cashflow just because you own it.  Remember every buyer is trying to buy low and sell high.   But the out of home industry goes in cycles.  Billboard cashflow declines in a recession and multiples also contract.  If you buy on a downturn and are patient you’ll make money.  Revenues dropped 30% during 2009.  If you had the stomach to buy assets in the middle of the doom and gloom you profited handsomely when the economy recovered.  There were also a few (but not many) panicked sellers who traded assets at decent prices during and after covid.  Sean Reilly said as much during a 2023 JP Morgan investor conference: “’21 and ’22, I think we pulled forward some of the activity that we would otherwise have had this year, in part because owners of these assets, I mean, COVID scared the hell out of them, right? I mean we’re in the out-of-home business and everybody was locked in their home, right? We were an oxymoron but then they recovered very quickly as did we, right? Our medium was — showed incredible resilience coming out.  And I think some of them said, “I don’t think I want to do that again.”

Billboard Insider’s take:  The easiest way to create value in an out of home acquisition is to buy undersold billboards and to a better job selling.  The next easiest way to create value is to buy at a good price during a recession or downturn and to be patient.  It’s very very hard to create much value by cutting expenses because there aren’t too many expenses to cut.

What’s your take on how to create value in an acquisition.  Email davewestburg@billboardinsider.com or use the comment box below and we’ll run a followup.

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