Australian advertising: Private equity goes outdoors

When it comes to interacting with the Australian consumer, global consumer brands such as Coca Cola now have new possibilities. If they want to garner specific information from prospective customers, they need look no further than the new field communication technology embedded in an increasing number of digital billboards. Located in airports and shopping centers nationwide, these billboards contain chips that interact with an individual's mobile phone, offering movie previews or free soft drinks in return for access to phone data logs detailing consumer preferences.

New field communications (NFC) are an exciting development in Australia's outdoor advertising industry, representing one of the prime opportunities ripe for exploitation by recent investors into the sector. These include CHAMP Private Equity, which bought Sydney-based oOh!media for A$163 million ($176 million) last December, and Quadrant Private Equity, which agreed to form APN Outdoor, a A$272 million outdoor advertising joint venture, with APN News & Media in February.

Earlier this month oOh!media announced that it will buy Eye Corp, Ten Network's outdoor advertising business, for up to A$145 million. Having won the largest airport advertising contract in Australia earlier this year, Eye will be rolling out digital screens at the Qantas airline terminals in Sydney, Melbourne, Brisbane, and Perth over the next few months. These will have the capability for social media integration.

"The interactivity of an individual's phone with a digital billboard is a real opportunity going forward," Darren Smorgon, a director of CHAMP Private Equity who led the oOh!media investment, tells AVCJ. "The NFC technology exists in a lot of phones and will probably be in the next generation of i-phones, which will help to grow the market further."

You go first

But what was it that prompted these PE firms to this sector in the first place? For the past decade or more, industry participants had been eyeing the opportunities in this space in Australia, but though it was widely regarded that there were too many large-scale players, all five of them - Eye (owned by Ten); oOh!media (also owned by Ten); Outdoor (owned by APN); JC Decaux and Adshel - were corporates that for some time claimed to be buyers rather than sellers.

"It really took one of them to blink and accept an offer from private equity, which then broke the nexus so that all the others could start thinking about the role they wanted to play," says Callen O'Brien, the partner at law firm Minter Ellison who led the team advising Quadrant on its joint venture with APN. "As a result, the sector has suddenly become quite active."

The growth prospects for outdoor advertising must have been highly persuasive for investors. According to PricewaterhouseCoopers' (PwC) latest Global Entertainment and Media Outlook, out-of-home advertising in Australia increased by 3.7% in 2011 to reach $510 million. The market is expected to grow by 5% compounded annually to $650 million in 2016.

But the main explanation for the involvement of PE in particular was the realization that capital requirements were going to rise over the coming years as outdoor advertising firms digitize their inventories. The issue that businesses such as oOh!media, APN and Eye faced was that, as part of bigger media organizations, they weren't number-one in the pecking order for capital allocations.

Private equity firms could see the benefits that will flow through to market as a result of digitalization though - site owners stand to make far better returns from digital signs than their static counterparts, as multiple advertisers can occupy the space previously utilized by a single advertiser - so they were willing to make that investment. "Having electronic billboards is compelling on behalf of the customer, as well as on behalf of the operator that provides the billboard," explains CHAMP's Smorgon. "To be able to have a digital screen directly outside a supermarket is a very credible sales proposition for an FMCG customer."

Monitoring every MOVE

Outdoor advertising in Australia was given a further boost in February 2010, when a new audience measurement system called MOVE (measurement of outdoor visibility and exposure) was introduced. It provides advertisers with more precise details about their audience by counting the number of people likely to see the ads rather than simply the number of people who pass by them. Thanks to strategies based on this data, the industry was able to increase viewing figures by 13.6% in 2011.

"It's given comfort to media buyers about the audiences that see outdoor media," says Megan Brownlow, executive director at PwC. "It's translated into higher revenues because outdoor media is in competition with other types of media that don't have that sort of data"

While further consolidation remains a distinct possibility for the sector in the future, AVCJ's sources were equivocal on the issue. The stickler seems to be that, due to CHAMP and Quadrant's existing holdings, there may not be enough remaining players of sufficient scale to attract private equity interest.

There also still appears to be a role for niche operators to maintain their strong market presence, such as JC Decaux and Adshel, which together dominate the bus shelter ad market. "The top four players in the outdoor space have a combined market share of about 70%, so there are further consolidation opportunities available but we certainly don't want to make acquisitions for acquisitions' sake," says Smorgon.

He admits that consolidation does make sense from an industry perspective, however, because the 4-5 big media agencies that operate in Australia would prefer to deal with a smaller number of companies offering a broader sales proposition. Some also point out that the costs of maintaining digital billboard sites are increasing, so having greater economies of scale would better enable site owners to manage these costs.

Additional bolt-on acquisitions are to be expected by oOh!media and APN in the near future, in any case, especially as prior to CHAMP's investment, oOh!media had already realized 18 acquisitions. According to PwC's Brownlow, mobile digital media companies represent the biggest bolt-on opportunity for firms hoping to create portfolios with synergies.

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• Topics
• Australasia
• Australia
• Media
• CHAMP Private Equity