Market prices for billboards and billboard companies are still in a declining trend. The highest multiples of a billboard’s Effective Gross Income* (or Net Revenue) were paid in 1998 and 1999. This pricing measure reached an average of 6.2X EGI according to our calculations for 1998, and declined to 5.6X in 1999 and 5.5X in 2000. This trend is also consistent with acquisition prices in other industries that went through aggressive acquisition phases in the late 1990s. The high prices were fueled by the excessive prices in the stock market resulting from an expanding economy with low inflation. Debt and equity financing were readily available to buyers and no outdoor advertising company’s price seemed too high. By the time the dust began to settle in 2000, the three largest billboard companies had made enough acquisitions to own more than 80% of the sign faces in the United States. Acquisitions are still occurring in 2001, but prices have continued to trend downward. Our research indicates that the average EGIM in 2001 is down about 20% from the prior year and is currently below 4.6X.
Lower prices in 2001 are also evident based on multiples of cash flow or Earnings Before Interest Taxes Depreciation and Amortization (EBITDA). The average EBITDA multiple in 1998 was 12.4X. Our reconciled data in 1999 and 2000 suggests that cash flow multiples were approximately 15X to 16X EBITDA. According to this data, prices reached their peak in 1999 and 2000. EBITDA multipliers in 2001 are averaging about 11X cash flow, which supports the downward trend seen in EGI multipliers.
The reasons for declining outdoor advertising asset prices are clear. As the national economy moved from expansion in 1999 to contraction and recession in 2001, advertisers began to spend less money. Billboard occupancy fell. Advertising rates softened. Smaller billboard companies that were available for sale found that a buyer’s market was developing. In most cases, these smaller operators that expected to sell at the prices recorded in 1998 and 1999 were not able to consummate a deal.
Lamar Outdoor (one of the three leading outdoor advertisers in the country) continues to look for attractive companies to acquire, but fewer deals are expected in the next 12 months than in the past 12 months. This expectation is due to three factors. First, there is normally a natural decline in the volume of acquisitions in the second half of the calendar year. Many deals negotiated during the year are delayed until after December 31st for tax purposes. Second, there are fewer companies to acquire. Past consolidation has reduced the number of attractive target opportunities. Third, many sellers are not willing to take a lower price in the current economic environment. If a seller’s debt level is low enough, they can ride out the current slump in advertising revenue and wait for better opportunities in 2003 or 2004. Although, these billboard operators may have lower profits in the next 12 to 24 months, they will continue to own valuable assets.
*Effective Gross Income is the amount of actual receipts of a billboard owner. It can be approximated for individual signs by deducting vacancy and commissions from market rates.
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