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Billboard Financing March 2014 Dave Westburg Taneum Creek Capital 206-910-1283 Billboard Financing3/1/141.

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Presentation on theme: "Billboard Financing March 2014 Dave Westburg Taneum Creek Capital 206-910-1283 Billboard Financing3/1/141."— Presentation transcript:

1 Billboard Financing March 2014 Dave Westburg Taneum Creek Capital 206-910-1283 Billboard Financing3/1/141

2 Dave Westburg Background 25 years lending to out-of-home business. Four funds which have $20 million lent to media companies. Finance billboards, digital signs, 8 sheets and transit advertising through Billboard Loans Raise equity and debt for billboard companies via Marconi Capital ( Provide operating services (sales, accounting and management) to billboard companies via Circle City Outdoor ( Billboard Financing3/1/142

3 A Lender’s View of The Billboard Industry Industry rebounding from recession Great industry economics. Digital signs creating growth opportunity but have drawbacks. Some parts of the country overbuilt with rents of 30-50% of normal. Billboard Financing3/1/143

4 Outdoor Revenues recovering from recession YearUS Outdoor Revenue (millions) % ChangeUS GDP (billions) % Change 2008$7,3000%$14,381-2% 2009$5,900-18%$14,672+2% 2010$6,100+3%$15,242+3% 2011$6,400+5%$16,041+3% 2012$6,700+5%$15,535+4% 9 mo 2013+4%+3% Billboard Financing3/1/144

5 Digital Sign Pros and Cons Pros – 6-8 advertisers versus 1. – Ability to change copy without $400/install. Cons – 100,000 life (11 years) versus 40 years for steel monopole. – $350,000 capital costs versus $40,000 for monopole – Higher electricity and insurance. 3/1/14Billboard Financing5

6 Market impacts of being overbuilt Normal rent for 14 by 48 billboard or digital billboard: $1,000-1,500/month. Rent for 14 by 48 billboard or digital billboard in overbuilt market: $300-700/month. 3/1/14Billboard Financing6

7 Industry Valuations 4-6 times gross revenue. 6-10 times cashflow (earnings before interest, depreciation, amortization and addbacks). Values at high end if: – You own easements under signs. – You have good leases (low cost, long maturity) – You have digital sign conversion potential. – You have 14 by 48 billboards. – You have clean permits. Values at low end if: – You have bad leases (high costs, short maturity). – You have smaller billboards. – You have permit issues. Noone pays for potential revenue. Billboard Financing3/1/147

8 What you need to access debt. Equity. A transaction. A loan package. Billboard Financing3/1/148

9 A Lender’s View of Acquisitions Valuations – 4-6 times gross revenue – 6-10 times cashflow (ebidta) Are leases decent? – Lease costs less than 20% of gross revenue. – No guaranteed annual rent increases. – 20 year term. Is market overbuilt? Digital sign potential Purchase assets, not stock. – Can depreciate assets but not stock. – You’re stuck with the owner’s liabilities. Billboard Financing3/1/149

10 A guide to addbacks OK – Interest – Financing charges. – Fines and penalties. – Leases for space which won’t be used. – That portion of owner’s salary which won’t be replaced. Not OK – Corporate overhead. – Phone expenses. – Travel. – Unspecified personnel cuts. – Legal fees. Billboard Financing3/1/1410

11 Sources of Equity Home equity line of credit. Savings. – Costly to access 401(k) or IRA. 10% early withdrawal penalty. Taxed as current income. Friends and family. Jobs Act (SEC Oct 23, 2013 Proposal on Crowdfunding). Accredited Investors. Equity Funds. Billboard Financing3/1/1411

12 Examples of Undeclared Liabilities Which You Inherit If You Buy Stock Unpaid leases. Unpaid contractor bills. Environmental liabilities. Lawsuits. Tax liabilities. Billboard Financing3/1/1412

13 The Loan Package (in order of importance) Sources and uses of funds. Historic financials. Personal financial statement. Operating spreadsheet of the plant you want to buy (locations, sign type, lease terms, lease expiry, advertiser, ad contract terms). Management bio. 3 business and professional references. Projections. Billboard Financing3/1/1413

14 What to do when approaching a lender. Be specific on how much money you want and for what. Approach the lender when you don’t need the money. Talk the lender’s metrics – Revenues – Cashflow (EBIDTA) Dwell on history, not on the future. Billboard Financing3/1/1414

15 EBIDTA (what the business can pay the bank) Earnings before: – interest – Depreciation – Income Taxes – Amortization Trailing twelve months. Debt Capacity is a multiple of EBIDTA Debt Service coverage is (Interest and Principal)/EBIDTA Billboard Financing3/1/1415

16 Billboard Loans Debt Terms Interest rate of Prime plus 6% floating. Floor on the rate at 12%. 2% loan fee. 2% legal/travel fee. Personal guarantee. First security interest in all assets of business. – UCC on inventory, equipment and receivables. – Assignment of material agreements. – Pledge of stock. Billboard Financing3/1/1416

17 My Debt Terms Continued Debt/EBIDTA of 6:1 or less. Debt Service Coverage (Interest and principal)/EBIDTA in excess of 1.1 times. Restrictions on dividends, salary, capital expenditures, other debt … 7-20 year amortization. Billboard Financing3/1/1417

18 Sources of Debt Taneum Creek Capital. Sign Vendors (Yesco, Daktronics) Banks. Leasing Companies. Beware prepayment penalties. Finance companies (usually want to do $10 million or more). Billboard Financing3/1/1418

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