• Out of Home and the Next Recession

    It’s been 10.5 years since the last recession.  That’s the longest recovery this century.  No one wants a recession, but a prudent out of home manager needs to keep recession risk in the back of their mind.

    What happens to out of home revenues in a recession?

    Out of home revenues decline in a recession.   Look at this chart from the November 2019 OUTFRONT media investor presentation.  US Out of home revenues are in blue.  US GDP is in black.

    Out of home revenues decline by 1-3% during a minor recession.  Out of home revenues declined by almost one fifth during the 2009 recession.  The 2009 recession was especially severe because it was debt fueled and debt fueled recessions are particularly long and nasty due to multiplier effects of too much debt.

     

    How might a recession impact out of home.

    • Out of home revenues will fall by 1-3%.
    • National out of home revenues will fall more than local revenues.  It’s easier to cut back on a brand or image campaign in a recession than it is to drop the directional signage which your hotel or gas station relies on for traffic.  Also, local revenues tend to have longer contracts so the impact from a recession can get smoothed out.
    • Out of home values will drop because out of home companies are valued at a multiple of cashflow.
    • Banks will tighten up lending standards and increase pricing.  Most banks raised rates by 2-3% during the 2009 recession.

    Insider’s take:  This time will not be different.  We will have a recession, probably sooner than later.  If you’re thinking of selling there’s no better time.  If you’re not selling, make sure you’ve got adequate liquidity.  Lock in your bank debt for 2-3 years.  Keep your debt/cashflow at 4:1 or 5:1 or less.  iHeart/Clear Channel did a $17.9 billion leveraged buyout just prior to the 2009 recession and we know how that turned out.


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