The advertising industry should no longer be broken up into traditional segments like television, print and out-of-home when assessing M&A; deals.
That's expected to be the broad argument that Australia's two biggest out of home advertisers, APN Outdoor and oOh!media, take to the competition regulator as they seek approval for their proposed $1.6 billion tie-up.
The pair account for an estimated 60 per cent of the $850 million-a-year odd out of home advertising market, while rivals JCDecaux, Adshel and upstart QMS speak for much of the rest.
On those numbers alone, it is easy to see why the Australian Competition and Consumer Commission launched an "informal review" last week and will take a look at the situation more closely in the new year.
However, as APN and oOh! have told their own investors over the past week, they are expected to argue that they don't just compete against the likes of JCDecaux and Adshel.
Rather, their competition is across all advertising mediums including digital, radio, television, cinema and the like.
And just as advertisers and the advertisers' media buyers chop and change between the different mediums and play them off against each other, out-of-home advertising should not be considered separately from the broader $13 billion a year market.
And if you consider that market, the combined APN and oOh! would be a small player with less than 3 per cent of annual advertising dollars.
The pair is also expected to argue that site owners from who they source the billboard space tend to be large corporate landlords, government authorities or significant infrastructure owners/operators, who know how to negotiate to get good outcomes. They also reckon barriers to entry into the out-of-home market are low, as the physical infrastructure remains with the property owner.
It'll be interesting to see how the argument goes.
From a transactional perspective, it could be an important precedent as media companies and their bankers run the numbers on various corporate plays should ownership finally change, as has been widely anticipated for the past decade.
CLSA analysts reckon the combined APN/oOh! would be worth $2.4 billion, based on 11-times forecast 2018 financial year earnings before interest, tax, depreciation and amortisation.
The broker reckons the combined company would have revenue worth $783.3 million in 2018 and $120.6 million net profit after tax and amortisation.
