OOH …Here’s One Thing

Thriller

by Jim Johnsen,
Managing Director,  Johnsen, Fretty & Company

Several people asked me this week what I thought about Outfront’s sale of its Canadian operations to Bell Canada/Astral.  Quite frankly, I wasn’t sure what to think or how to answer, other than it was a fairly large transaction for the industry and it went off without much fanfare.  I guess I really wanted to take my time to think about it and also get here from some of my friends north of the border.

But perhaps this a bit of headline for a future entry.  First off hats off to Mark Boidman for seemingly synthesizing this one.  Wild guess tells me that the C-suite at Outfront didn’t start this year off with the intention of selling its Canadian plant.  If Mark and Outfront did take it through a “process” where it explored the market with the likes of Pattison, Bell Canada and some private equity on both sides of the border, man did it do it quietly.  Again wild guess tells me it was a single buy now conversation.  (I might also remind you that Outfront doubled down not that long ago in Canada with the acquisition of Dynamic.)

First the facts:  Roughly a $300MM purchase price/ $92MM net revenues / $20MM of cash flow

Yes on the surface it looks like a decent price for the business.  15 times cash flow.  But let’s dig a little below the surface.  When was the last time we saw a sale of a very large outdoor business at 3.26 times net revenue?!  Honey back the truck up.  Note that if those numbers are roughly accurate, it means the Canadian operation was only generating a 22% margin.  This tells me that either expenses were bloated, the top line had swooned or the business was burdened with transit (although I think most of this stuff was cast off after Outdoor Systems bought it).

Here’s some more food for thought.  If 9,325 displays were sold that means Bell/Astral paid $32,172 per display.  My quick math tells me they bought it for less than replacement cost?  If you are sitting down…that 9,325 includes 4,596 DIGITAL!!! displays (note I sourced this from a news outlet  …I have not double checked it).  So let’s run some more math.  Assume the analog displays are worth $0.  Under this extreme assumption that means Bell paid $65,274 for each digital display.  Honey get a bigger truck.

It also might be fun to remember that when Arte sold to Viacom/CBS, he sold at 10x revenue, or about 3x what Outfront got for it.  And here is one parting thought that I will be back to you.  Outfront Canada was for a long time known as Mediacom.  Mediacom for as far back as I can remember was one of the big 3 in Canada.  A real friggin franchise, almost impossible to build, very hard to get and not easily parted with.  At some point prior to 1978 Karl Eller purchased Mediacom and tucked it into Combined Communications.  In 1979 Mediacom became part of Gannett Newspapers, and sometime thereafter the president of Mediacom, Don Davidson was brought on to run all of Gannett Outdoor (both US and Canada).  Arte Moreno purchased Gannett Outdoor including Mediacom in 1996 and then sold it to Viacom/CBS in 2000.  Long short, several outdoor rock stars have owned and loved Mediacom dearly.   But I am not doing it justice, so I will save the deep history for a later date.

Whether this is a variation on Jack and the Beanstalk or not, unfortunately we will never know as the goose is about to get buried deep in a much larger company.

Happy Halloween

JJ

jfco.com
Securities transacted through StillPoint Capital Member firm FINRA/SiPC

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