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Billboard Financing March 2014

Billboard Financing March 2014. Dave Westburg Taneum Creek Capital dave.westburg@comcast.net www.billboardloans.com 206-910-1283. Dave Westburg Background. 25 years lending to out-of-home business. Four funds which have $20 million lent to media companies.

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Billboard Financing March 2014

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  1. Billboard FinancingMarch 2014 Dave Westburg Taneum Creek Capital dave.westburg@comcast.net www.billboardloans.com 206-910-1283 Billboard Financing

  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 www.billboardloans.com • Raise equity and debt for billboard companies via Marconi Capital (www.marconicapital.com). • Provide operating services (sales, accounting and management) to billboard companies via Circle City Outdoor (www.circlecityoutdoor.net). Billboard Financing

  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 Financing

  4. Outdoor Revenues recovering from recession Billboard Financing

  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. Billboard Financing

  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. Billboard Financing

  7. Industry Valuations • 4-6 timesgross 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 Financing

  8. What you need to access debt. • Equity. • A transaction. • A loan package. Billboard Financing

  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 Financing

  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 Financing

  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 Financing

  12. Examples of Undeclared Liabilities Which You Inherit If You Buy Stock • Unpaid leases. • Unpaid contractor bills. • Environmental liabilities. • Lawsuits. • Tax liabilities. Billboard Financing

  13. The Loan Package (in order of importance) • Sources and uses of funds. • Historic financials. • Personal financial statement. • Operating spreadsheetof theplantyou want to buy (locations, sign type, lease terms, lease expiry, advertiser, ad contract terms). • Management bio. • 3 business and professional references. • Projections. Billboard Financing

  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 Financing

  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 Financing

  16. Billboard LoansDebt 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 Financing

  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 … • 7-20year amortization. Billboard Financing

  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 Financing

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