Last Friday OUTFRONT CFO Matt Siegal suggested that out of home multiples are lower. Five investment bankers tell insider that there hasn’t been a dramatic shift in multiples.
Max Drachman, Kalil and Co
I believe there are many executives that would agree with Matt on feeling an acquisition today would trade at a lower multiple than January, but nearly all of our closings right now are happening at retail multiples of normalized cash flows (YE 2019 or some blending to alleviate dips in April and May). Granted, we are getting offers from fewer acquirers compared to the pre-pandemic environment, but the end-of-the-day pricing remains consistent with where it has been for the last five years. Sellers are resistant to selling at a potential discount likely due to the lack of overall leverage pressure and the seemingly universally embraced positive long term outlook on the Outdoor space. If the valuation does not meet the seller’s expectations – they hold. Some buyers are a bit nervous about deploying capital in this environment, others are not as concerned. A lot of it depends on geography and the types of assets as well. Small and medium market operators appear to be doing very well, whereas a lot of the larger market operators that are more dependent on national seem to have had more difficult Q2s, but many are now seeing green shoots and feeling optimistic again…We are getting rolling on a couple larger opportunities and the interest has been strong, likely due to the scarcity of other available inventory on the market today. There are still plenty of funded buyers looking for attractive assets, so we are highly optimistic about the outcomes for those engagements.
Jim Johnsen, Johnsen Fretty
On behalf of the entire Johnsen, Fretty team, we would like to commend you on your article highlighting Matt Siegel on Friday. We think the world of the entire Outfront management team. In our humble opinion, one of the best teams to ever steer the ship of a large multinational outdoor company. The surgical moves they made early in the crisis to avert possible liquidity issues were masterful. While the recent 50% down in revenue announcement was not happy news for any of us, the fact that they guided the market there early in the quarter and then did not miss that guidance was impressive a s well. I recently returned from LaGuardia airport and I can confirm that traffic is back! As to Matt’s comments about acquisitions, we don’t believe there are going to be any “steals” out there in the near future. Maybe valuations are down a tick or two, but we have not seen any dramatic shift in pricing over the past several months. What we have seen, much like we saw in 2008 and 2009, is a number of sellers make the strategic decision to hit the pause button until there is more visibility around the economy in general and the advertising economy specifically. Yet we are also experiencing a material pick up in interest from non-LOC (Lamar, Outfront and Clear Channel) strategic buyers as well strong interest from the financial buyer community. I think the equity deal Outfront did with Providence Equity and Ares woke a lot of folks up in the financial community! While we are in a little bit of a potential shake up at the moment, lets not forget, from a risk return perspective, in this incredibly low interest rate environment, investing in outdoor advertising is still one of the best games around. This dynamic should continue to support attractive pricing for sellers but also support good returns for buyers. To quote my partner Gabe, “if the prior two recessions are any indication, the seeds of great wealth are planted when things appear most bleak.”
Paul Wright, SignValue
We have several deals in the pipeline and more coming online in the next 60 days. With the exception of a few really unique opportunities, none have a huge bid-ask spread. So far most small and medium sized owners are weathering the storm better than Outfront and Clear Channel and have not lowered their prices or multiple expectations. In fact, we have some clients that are actually seeing an uptick in rate and occupancy due to increased road trip traffic in their vacation home markets. We would never say never, but unless we see a huge spike in Covid cases and more stay-at-home orders this year we expect to continue closing deals at record levels and full multiples.
Chris Stark, President, Stark Capital Solutions
There are still plenty of willing buyers out there looking to do deals. With the perception that the larger public companies are going to be limited in their acquisition activity due to capital budget cuts this year, we have had a number mid-sized players reach out asking if there are “deals” out there. However, the supply of transactions is down. This is logical. If revenues were down in the 2nd quarter between 10-50%, potential sellers don’t want to enter the market until they feel they have recovered to a more normalized revenue stream. Otherwise the multiples don’t really matter. Even a high multiple on a lower cash flow stream will feel like a discounted value to a seller. We have closed acquisition deals during the past 6-months, but they were transactions that were into the market before Covid hit. We have not seen many new to market deals since April. We are having a number of conversations with potential sellers who are just working on rebounding their revenue before entering the market.
Regarding multiples, in our opinion there have not been enough post Covid transactions to draw any conclusions. Looking back on the past 10-yrs transactions, the majority of the mid to small sized deals got done between 8-10x operating cash flow. The limited deals that traded above that range were primarily larger transactions with the type of scale to be an entry point for a PE backed group, or move the needle for an incumbent public company in a given market. We don’t see many of those transactions coming down the pike in the next couple quarters, unless someone larger gets into a distressed situation and has to sell. Otherwise, we feel we will see smaller transactions more in the average 8-10x for the near future. That said, if a good sized operation comes along that fits the profile of the past high multiple transactions, we believe there is still enough liquidity and demand that we would see a higher multiple get the deal done.
Marty Williamson, Williamson and Associates
So far this year we have closed on 9 deals ranging from a few signs to several hundred. From my perspective, 2020 is a very busy year. In addition to the closed transactions, we have 6 more under LOI and several more listings that I expect to receive offers on. I see no decline in the multiple being paid for solid companies and assets. The majority of buyers I talk to understand that multiples of cash flow have not changed and there really are no fire sales caused by COVID-19. Had shutdowns lasted longer, that could have been different.
I talk to independent out of home operators every day and, while a few have certainly been impacted by the economics of COVID-19, the vast majority have only seen a brief pause or down turn in revenue and most all are now doing very well with some actually doing better than 2019. The independents that have a strong local ad base and minimal agency/national regional business have this pandemic in the rear view mirror. These operators are working smart and hard – driving sales, nurturing community relationships, shifting the advertiser categories they target and even adding new locations and making digital conversions. Most all are bullish on the remainder of 2020 and expect next year to be strong.
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