The digital out-of-home industry has seen some pretty seismic events these past months, and it looks like there will be more, not less, significant happenings going forward.
To help understand all of this and in fact to get a bit of an expert opinion, we spoke exclusively to Chris Riegel, STRATACACHE founder and CEO, to get his perspective on how the industry might shake out…
You announced your USD 25 million Strategic Acquisition Fund in the middle of September. Can you tell us a little bit more about the response you have had?
We have had no fewer than 50 inquiries from companies in the digital signage ecosystem looking for an exit. While we were not surprised by the response (we knew that this was the ideal time and market condition to ride the consolidation wave), we were surprised by the roster of ‘big names’ in this industry looking for an exit.
How many of those folks have you engaged with?
Of that group, we have engaged in a dialog with enough of them to have a very clear understanding of a fundamental shift taking place. While this shift is partly due to reality setting in to level-off the hype generated by this marketplace over the past 3 years when capital was cheap and easy, and little companies with big ideas generated much more smoke than fire, it is apparent that the ’bell is ringing’ for many firms, and (especially for companies in the U.S. & Canada that owe their existence to and have pledged their souls to VCs and the capital markets) the word CHANGE has a whole new meaning outside of the political sphere.
What catalysts do you see triggering this shift?
From a financial point of view there are 6 things that we are really noticing…
- Many startups or early stage companies who relied on venture capital to grow are not able to raise money (at any cost) in this environment.
- Big customers are shell-shocked and large new projects/large new capital investments are on-hold until the financial markets settle down and customers see the light at the end of the tunnel.
- Many VC backed firms are seeing their patrons reverting to ‘bunker mode’ due to the overall U.S. financial crisis and their own capital calls, and are cutting their losses, refusing to fund new rounds for existing investments.
- The IPO market is non-existent and that won’t change for the next 18-24 months (best case).
- Public Companies (large and small) experiencing massive downward pressure on their stock are trying to limit their losses.
- Banks (especially in the U.S.) are starting to cut or call commercial credit lines, tightening the financing noose. This is not the death of the digital signage industry. In fact, it is a good and necessary ‘thinning of the herd’ which will separate capable entrepreneurs and operators from the gadflies that chase the latest hot sector.
How do you see this all playing out?
There are some spectacular flameouts coming and lots of reshuffling about to take place, so be warned that your vendor partner today may have a different card (or no card at all) tomorrow.
In these conditions, cash is king, and there are wonderful opportunities for the true believers in this market to double down and come out the other side of this for the better. However, in the short term, it is going to be a VERY bumpy ride.
Thanks for your time.