The CVCA was proud to award Clairvest Group with the 2017 Private Equity Deal of the Year Award on June 7th, during the Invest Canada ’17 conference in Montreal.
Clairvest Group is a Toronto-based private equity management firm, which selects industries or segments within industries where there is an opportunity to create substantial equity value, generated CAD $125.3 million from its initial investment in Cieslok Media of CAD $15 million, representing cash proceeds equal to 8.4X. The exit generated an internal rate of return of 92% over a period of just over three years. Since investing Cieslok Media Inc. has grown its presence across Canada, with major moves including the acquisition of the assets of Toronto and Vancouver-based OOH company Clarity Outdoor Media and Edmonton-based AdQ Media. Cieslok Media Inc. also launched its integrated mobile advertising product through a partnership with Sito Mobile.
The CVCA had a chance to discuss the big win with Robbie Isenberg, Managing Director and Mitch Green, Managing Director at Clairvest Group earlier this month.
CVCA: Can you walk us through the investment story behind your decision to first invest in Cieslok back in 2013?
Robbie: Our media domain work and mapping of the industry landscape identified outdoor advertising as highly attractive. It was the only area of traditional media that was growing, and it was growing well. This was attributable to a few factors. We spend more time in traffic, creating longer view time of the signs. High quality digital signage also does a better job of making a lasting impression. Importantly, the digitization of static billboards had just begun. Once digitized, the revenue generation of a billboard dramatically improves with 6-10 advertisements per 60 second loop. Advertisers can better customize their messaging to flip between different advertisements and can use analytics to target their message (such as a sunscreen ad that only plays when the temperature is over 25C). Finally, the signs have great stability since operators typically own the permits which creates switching costs for the landlords due to regulatory processes.
So our domain work was positive but out-of-home assets trade at huge EBITDA multiples because of the tremendous cashflow conversion, stability of the signage and sizeable acquisition synergies. Like many Clairvest deals, Cieslok was more of a diamond in the rough at the time of our investment. The business was identified as non-core by US-based Titan (now Intersection). Titan was backed by Welsh, Carson, Anderson & Stowe (a US PE fund) and was focused on large scale transit-related out-of-home projects. Titan Canada was given virtually zero growth capital from its parent and converted over time into a sales organization for signs owned by landlords. With the landlords owning most of the sign permits, the business was less attractive to strategic buyers.
We saw a huge opportunity to reignite the sales and owned signage growth engine alongside Jorg Cieslok. Jorg had developed and sold the bulk of the Titan Canada assets to Titan back in 2004. He then had become an executive with Titan for eight years, primarily in the US. We backed Jorg, a highly regarded outdoor executive, to take Titan Canada to new heights and he wrote a check alongside us in this pursuit. We renamed the company Cieslok Media, the name he operated under until he sold to Titan in 2004. Our goal was to build a national network of owned spectacular billboards with sizeable digital inventory in each of Canada’s top five media markets. We knew such an asset would have great strategic significance.
CVCA: Can you speak to the success of the exit and what it’s meant for the firm?
Mitch: We don’t plan on this magnitude of success for our deals, but always hope that enough things will go right to create the possibility for an outsized return. It is obviously great for Clairvest and our investors, but I have to say the life changing event these home runs create for our entrepreneur partners is most exciting. I have had the good fortune of seeing this a number of times at Clairvest. Our operating partners are the best ambassadors for the Clairvest brand, so it is hugely valuable for us to have another superstar in Jorg Cieslok.
CVCA: Did you have any hiccups along the way, or any notable lessons learned?
Mitch: Even the home runs have hiccups and lessons learned. As a discipline, we prepare a detailed lessons learned document for each investment at the time of exit. A key lesson learned on Cieslok related to the fact that corporate carveouts were not a deep area of expertise for us at the time and we underestimated the caliber of resources required to make Cieslok a successful standalone business. The org chart took a while to get dialed in, but once we had the right people in the right positions, Cieslok vastly outperformed the market on all fronts.
CVCA: How have you seen Cieslok Media evolve over the years?
Robbie: At the time of our acquisition, the company owned only one digital sign, a sizeable sum of large-format static billboards in Toronto and one sign outside of Toronto. The rest were owned by third party landlords. We put an optimized balance sheet in place to aggressively pursue new sign development. By our exit, we had 47 owned large-format digital billboards and a robust large-format static billboard fleet with material digital sign presence in each of Toronto, Vancouver, Montreal, Calgary, and Edmonton. Over time, most of the third-party rep agreements went away and Cieslok was able to redeploy those ad dollars to their owned signage, further enhancing margins. We also completed three noteworthy tuck-in acquisitions that added to both our static and digital sign fleet.
We further saw an opportunity to lead the market from a technology standpoint. We offered unique capabilities like real-time updates to digital billboard content (like texts or weather), and dayparting. We built a leading mobile geotargeting offering inside Cieslok. We geofenced the perimeters of our billboards. If you were on your phone inside our geofence we had 55,000 apps where inside our fence we could then push an advertisement to you. You would see a pizza ad on the billboard and at the same time you would see a pizza banner ad on your phone. We then could measure the walk-in traffic and deliver a full-circle ROI back to the advertiser. By our exit a noteworthy portion of our sales included both billboard and mobile in the same sale.
Evolution within the organization spanned many areas from business development to sales to technology to the management team. The sophistication of the sales effort to be able to sell national campaigns instead of regional/local and have success in less familiar markets like Montreal where competitors have more presence was a challenge at first. Financial capabilities also expanded meaningfully. We worked hard with management to instill cash flow and ROI acumen whereas under the old ownership they were revenue focused. Every new sign built was a large undertaking so having a laser-focus on where we could generate a strong return was central to the speed of success this deal achieved.
CVCA: Have there been any particularly memorable moments in your experience working with and investing in Cieslok – particularly anything that sticks out in your mind that made this deal a particularly exciting or interesting partnership?
Mitch: I think the three acquisitions would probably be up on that list. They were an important part of our story and they added different things. Cieslok’s first acquisition brought a marquis location on the Gardiner as well as other digital signs in Toronto and Vancouver. The second deal created a digital network in Edmonton, and the last acquisition brought one of the last collections of large format wall signs in Toronto not owned by a major operator. Each time we did one of those acquisitions, it was a nice lift to our performance since the revenue and cost synergies were dramatic.
CVCA: Do you have any advice or words of wisdom, on the exit side of things, to share with your industry peers?
Mitch: Cieslok is a great example of creating an asset of strategic significance. Every exit is different, but it was a nice validation that we went to a very short list of strategic buyers and achieved a terrific outcome in a short amount of time.
Robbie: I would say be openminded to deal structures. This was a corporate carveout. Jorg bought his equity in the business alongside us. We had to build the infrastructure as a standalone entity. The assets we were purchasing were not strategic, but we saw the potential. We focused on what this could be rather than underwriting what it already was. We were able to have that conviction due to the extent of our industry domain efforts.
CVCA: How is this exit different from your many other exits in your portfolio? Anything that particularly stands apart on this one?
Mitch: Cieslok is emblematic of our business model. Clairvest’s best outcomes have been sales to strategic buyers like this. This is our goal: to create businesses that grow and have the value for strategic buyers.
CVCA: Is there anything particularly exciting at Clairvest that your team has been working on, or that you’re anticipating for the future?
Robbie: We’re hoping to do another deal in the outdoor advertising space before long.
CVCA: Is the reason that, just because you had such a success with Cieslok, or just because you see it being such a predominant market? What’s the reason for that?
Robbie: We continue to see a number of great thesis opportunities within the space. At Clairvest, we’re domain experts so we spend our time in and around niche markets. The next investment in outdoor advertising may not look similar to Cieslok. There are nuanced approaches whether sub-segment or geography that we are pursuing and that coincide with the constant evolution of this marketplace.
CVCA: Would you say this market is rare in terms of private equity investing and somewhat of an untapped market for investors, or would you say that your firm is unique insofar that you’re investing in an atypical industry?
Robbie: It is a smaller space so the number of instances of private equity is limited but the main reason is the strategics are so acquisitive it creates an entry barrier for PE. Like this deal, we need to be creative but also have deep relationships in the market. The Cieslok board of directors was a good example of this where we had the former CEO of Pattison Outdoor and the former North American CEO of Mediacom. Relationships like these, Jorg and others, and our reputation for adding value to our related portfolio companies will be the key to our continued entry into the market.
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