Show Deals Remain Scarce in '03

Advanstar Communications' $135-million deal with Thomson Healthcare last October included just one tradeshow. PBI Media's two recent acquisitions didn't include any. And tradeshows were complete no-shows when it came to last year's 10 biggest media mergers.

All of which raises the question: Where have all the tradeshow deals gone?

After two years of declines, 2003 was to be the year that merger-and-acquisition activity began to pick up again. But despite the yearning of many financial and industry experts, that rebound failed to materialize.

"The buyers have a real appetite for tradeshows, but the sellers' perception is that the market is soft," said Joel Novak, managing director of New York-based Berkery, Noyes & Co.

The tradeshow industry wasn't the only one left watching and waiting in 2003. In fact, both the number and value of deals declined last year in all but four of the 10 sectors tracked by New York investment banking firm Jordan Edmiston Group Inc. Activity picked up in newsletters, newspapers and business-to-business and consumer magazines; deal flow languished for database information services, directories, educational publishing, online media and exhibitions.

The exhibition and conference sector saw the largest decline in the number of deals and the third-largest drop in size of deals during 2003, according to JEGI figures. Some 18 deals with a total value of $106 million were reported last year, compared with 33 deals worth $155 million in 2002, JEGI estimated. Overall in 2003, there were 12.1 percent fewer deals worth 36 percent less than in the previous year.

Dmg world media, a division of British media giant Daily Mail & General Trust, emerged as the busiest tradeshow acquirer, with three deals. Cygnus Expositions, a subsidiary of the ABRY Partners-backed Cygnus Business Media, finalized two tradeshow acquisitions last year, according to JEGI.

As 2004 dawns, there are indications that M&A activity will pick up. The Dow Jones Industrial Average started the year 2,400 points higher than in 2003. The Gross Domestic Product ended last year up a respectable 3.1 percent. And strong corporate earnings are forecast throughout this year.

"We think this year's going to be busy, and we expect that to continue into next year," said Richard Mead, managing director for JEGI. "There's just too much pent-up demand."

Mead blamed the dearth of '03 deals in part on strategic buyers more focused on fixing internal problems than on expansion. Private-equity funds interested in tradeshows found slim pickings. And even if they could have found attractive acquisitions, bankers would have been reluctant to fund them. In addition, sellers not interested in unloading properties at the bottom of the market kept many potential acquisitions off the market, Mead said.

Mead believes strategic buyers such as Reed Exhibitions, VNU Expositions, McGraw-Hill, Penton Media and Ascend Media will slowly get back into the game. An initial public offering by one of the big, privately held business-to-business companies – such as Advanstar Communications, long-rumored to be going public – would undoubtedly spark some buying activity. But Mead doesn't see that in the cards this year.

He's not surprised that dmg and Cygnus were 2003's most active buyers, since dmg "has been a constant buyer of tradeshows over time" and Cygnus has a mandate to beef up its tradeshow holdings.

Higher corporate earnings in general are key to greater M&A activity for two reasons, Novak said. First, they will inspire companies to increase spending on marketing and advertising. Second, they will put companies on the firmer footing needed to obtain financing to make those acquisitions.

But after so many false starts, the buzzwords of choice remain "cautiously optimistic." Besides an upturn in the general economy, improved tradeshow metrics are also needed to help drive mergers. Novak noted that it's difficult to get investment bank backing for a deal when an acquisition target is reporting declining net square feet, exhibitors and attendees instead of steady growth.

And when a show continues to shrink, buyers tend to feel that the purchase price should shrink right along with it. The disconnect between what buyers and sellers feel a show is worth can make it difficult to settle on a price.

Baran Rosen, president of New York M&A advisory firm Whitestone Communications, said merger activity in the publishing sector is beginning to gain momentum. "Overall, things are really active again. There's been a lot of deal activity over the last couple of months," he said.

While Rosen predicts a 25-percent increase in the number and dollar value of transactions this year in the publishing sector, more moderate growth – 5 to 10 percent during the first half and 10 to 15 percent during the second half – is expected for tradeshow merger activity. Rosen believes that both tradeshow metrics and corporate marketing budgets will have to improve before heavy activity resumes. With the appetite for tradeshow acquisitions high, Rosen doesn't foresee any shortage of buyers.

PBI Media CEO Don Pazour said he has nothing against tradeshows. It's just that there weren't any available when his company was looking. "If a big tradeshow that had a nice fit came along, we definitely would be interested in buying it," Pazour said. "We have been opportunistic. We're pretty media-neutral in terms of our M&A objectives."

Mergers and acquisitions are key to the industry's future growth, said Novak, since most entrepreneurs launch companies hoping they'll eventually be scooped up by a larger player. The problem is that the recently established show management companies are not yet large enough to make good acquisitions. "Small shows don't have the advantages of a larger event," he said.

As the economy picks up, Novak predicted, buyers will become more impatient. "Strategic buyers will become more aggressive and not wait for properties to become available. They will start knocking on the door," he said.

Jeff Price, president of Cygnus Expositions, said booth sales and attendance in some industries are picking up.

"When the economy expands, the banks are going to want to put to work some of the capital they've had sitting there," he predicted.