RPT-BREAKINGVIEWS-Billboard buyout puts capital conundrum on display

By Jonathan Guilford

NEW YORK, Feb 10 (Reuters Breakingviews) - A billboard deal advertises the challenges of patient capital. Abu Dhabi-based sovereign wealth fund Mubadala agreed to pay $6 billion for advertising company Clear Channel Outdoor CCO.N, an unusual buyout play for an acquirer with typically long-range time horizons.

Clear Channel could use a savior. Emerging from former owner iHeartMedia IHRT.O in 2019, the advertising group has lumbered for years under a staggering debt load. The amount today stands at essentially the same $5.1 billion as it did back then. JCDecaux JCDX.PA circled its rival for years.

Co-CEO Jean-Charles Decaux managed to nab some Clear Channel assets, in Italy and Spain, as part of a dismemberment campaign that also offloaded a joint venture in China. The leverage problem, however, went unsolved.

Sovereign wealth funds like Mubadala do not face the endless churn of 10-year investment cycles that private equity shops do. Taking over Clear Channel is, in part, an exercise in fixing a mismatch in claims on the company’s long-term value, currently skewed toward creditors. The new owner will put in about $3 billion of equity paired with the same amount of debt. In an inversion of the norm, this buyout deleverages.

Mubadala also comes fortified. TWG Global, founded by Guggenheim Partners CEO Mark Walter, has experience in entertainment. Apollo Global Management APO.N, a byzantine machine built by boss Marc Rowan that leans into complex, long-term funding, is providing debt and preferred equity.

Clear Channel probably needs more than just a financial rearrangement. Assume Mubadala acts like a traditional buyout shop, holding the asset for five years before flipping it. At Clear Channel’s 3% rate of revenue growth, if margins hold steady and it is sold at the same near-12-times expected EBITDA multiple being paid today, according to Visible Alpha data, the implied annualized return would be below 5%.

Freeing management from crushing debt will help, though. Billboards are undergoing the same digital shakeup as everything else; headroom to invest in that change looks promising. If growth doubles, so would the implied payback. If Clear Channel’s valuation also rises to rival Lamar’s 16 times, Mubadala would reap a 22% return. If nothing else, the various machinations in this deal are a sign of the financial times.

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CONTEXT NEWS

Clear Channel Outdoor said on February 9 that it had agreed to be acquired by Mubadala Capital, the alternative investing arm of Abu Dhabi-based Mubadala Investment Company.

Under the terms of the deal, shareholders in the outdoor advertising company will receive $2.43 in cash per share held, a 71% premium to the price in October before Bloomberg reported a potential sale.

Mubadala is partnering with investment firm TWG Global, while Apollo Global Management will invest preferred equity in the transaction and provide debt financing.

Guggenheim Securities and JPMorgan are advising Mubadala. Morgan Stanley and Moelis are advising Clear Channel.