KKR testing the waters in media

KKR is understood to be looking into the outdoor advertising market. Picture: Matt Loxton

Kohlberg Kravis Roberts may have walked away from a $2.2bn deal to buy Perpetual’s Corporate Trust Unit, but it still has Australian-based mergers and acquisitions on its agenda.

Sources believe that, as well as financial services, as recently demonstrated by the Perpetual play, and commercial real estate (it has been thinking about whether to explore a major deal such as buying the country’s office landlord Dexus), it’s been looking at media assets as well.

The understanding is it is not working on any takeover or buyout as such, but carrying out some early stage exploratory work on different opportunities in the sector and what could represent good value.

DataRoom understands KKR in particular has been dusting off its file on the outdoor advertising market in Australia, with oOh!media among the companies it is now thinking about.

As earlier reported, the Australian-listed outdoor advertiser is trading at six times earnings when industry groups have previously traded at about eight times, and private equity firms are picking the bottom of the market in the sector with the Reserve Bank of Australia cutting the official cash rate this month on the back of economic weakness.

KKR is no stranger to the Australian media industry. In 2006, it bought into free-to-air broadcaster Seven Network before selling out of what became the Kerry Stokes-owned Seven West Media in full in 2013.

In 2019, when Quadrant Private Equity acquired outdoor advertising business QMS for $571.6m, KKR was believed to be weighing a rival offer.

Outdoor advertisers are promoting themselves as resilient to structural changes happening in the media industry to traditional sectors like radio, print and free-to-air television, which are being displaced by global technology giants like Google, Facebook and Apple and streaming service providers such as Netflix.

A growing number of billboards and street furniture signs are becoming digital, providing more space for additional advertisements, and are somewhat protected from the changes, with people still viewing ads in public spaces.

oOh!media’s share price rallied strongly on Monday when it delivered its results, and is up almost 19 per cent in five days.

Shareholders were impressed with oOh!media’s outlook guidance, with the Australia and New Zealand out-of-home media industry holding 15.3 per cent media spend share in 2024, up 0.8 per cent on the previous corresponding year and at record levels.

Analysts at Macquarie say oOh!media is well positioned into this year, with underlying industry growth, including rate cuts benefits, contract wins and operating leverage.

They estimate 7 per cent revenue growth, and a 17 per cent lift in earnings before interest, tax, depreciation and amortisation to $147m on the previous corresponding year.

oOh!media reported a 5.7 per cent lift in annual net profit to $36.7m.

Event Cinemas

Staying in the media space, analysts at Citi believe it would come as no major surprise if EVT sold its Event Cinemas business and reinvested the funds back into its hotels division.

The industry has been hard hit not only by structural change from streaming service providers, but the global pandemic and the Hollywood writers’ strike.

“We still see potential for cinemas to be divested over the medium term as hotels are increasingly prioritised for growth, with any excess capital heading to shareholders”, the analysts said.

Earnings before interest, tax, depreciation and amortisation fell 4 per cent on a 7 per cent attendance decline for the six-month period.

Citi said, should the company decide to sell its Australia and New Zealand circuits, they believed the company could realise $700m to $900m, which could be reinvested in hotels with any excess being returned to shareholders.

At the current share price, it appeared investors were only paying a marginal amount for the operating business.