Competition Remains Fierce for Top-notch Mergers and Acquisitions

Strategic players vie with private-equity investors for quality tradeshows

By Margo McCall -- Tradeshow Week, 2/14/2005

Put a quality media property on the market and you'll attract potential buyers in droves. Just ask M¦C Communications, Thomson Media, and the owners of AD:TECH.

As the merger-and-acquisition market heats up after two years of uncertainty, strategic players such as dmg world media, Reed Exhibitions and VNU Expositions are reportedly back in buying mode at the same time that private-equity firms' thirst for tradeshows and magazines seems unquenchable.

Consequently, it's a seller's market. Boston-based M¦C Communications, producer of the Pri-Med continuing medical education conferences and exhibitions, received healthy interest from a number of well-qualified buyers last summer before accepting Bain Capital's $400 million offer, which reportedly amounted to an astonishing 11 times forward operating cash flow.

Thomson's auction last fall of magazine and event producer Thomson Media yielded a half-dozen or so bids, among them Investcorp's winning offer of $350 million.

JD Events piqued several buyers' interest with its AD:TECH interactive advertising conferences and exhibitions before accepting a purchase offer from dmg last month.

Those who help orchestrate the buying and selling of tradeshows say — with varying degrees of optimism — that the market is finally recovering from the worries created by Sept. 11, war and an economic recession. Tradeshow size and attendance are now back on track, interest rates remain low and banks are feeling generous with capital.

According to Jordan Edmiston Group Inc., 2004 was a transitional year, during which 23 exhibition and conference deals worth $921 million were recorded. That was up from 18 deals worth $108 million in 2003.

And as 2005 dawns, the wave of activity is continuing. Within a recent two-day period, JEGI brokered the sale of Paperloop's Tissue World exhibitions and conferences in China, Japan and the United States; and the sale of both Intl. Investment Conferences and Resource Investor to Pfingsten Publishing.

"We've talked about it for long enough," said Richard Mead, JEGI managing director. "It's now a reality."

There's only one thing holding back the momentum. After a decade-long wave of consolidation, there's currently an imbalance between supply and demand.

"There's a dearth of really good properties available," said David Cheifetz, managing partner for The Compass Group Intl., an affiliate of media banker DeSilva & Phillips. "Many of the good properties have already been sold, and the nature of the industry has changed so that a lot of the companies for sale are full media companies. There are very few pure tradeshow deals."

As an example of the current imbalance, nearly half of the 47 media executives recently surveyed by Robert Crosland, managing director of AdMedia Partners, participated in a transaction during the previous year. However, 51 percent characterized themselves as event buyers and only 5 percent as event sellers.

And there's still some disparity on price. Would-be buyers in Crosland's survey signaled that they'd be comfortable paying multiples of 6.3 times operating cash flow for events, while would-be sellers preferred multiples of 7.9 times operating cash flow.

There are also indications that some high-profile properties will be put on the block in the near future. According to Mark Colodny, managing director at Warburg Pincus, "a number of moons are in alignment right now that make it more likely for transactions to happen than in the past several years."

Those conditions include high levels of available leverage, making it easier for buyers — particularly private-equity buyers — to pay full price for assets. Earnings have improved, offering support for higher prices.

And lastly, said Colodny, the influx of private-equity players who are just discovering the space is prompting veteran private-equity investors to consider selling their tradeshow holdings. "That will bring some assets back to the market," he said.

That was the case with Intl. Investment Conferences and Resource Investor, both of which were owned by private-equity firm Isis Venture Partners.

Reed Phillips, managing partner of DeSilva & Phillips, said tradeshows have always been valued for their ability to generate cash flow. Phillips recalls receiving five offers when he presented an available tradeshow to six buyers several years ago. "The challenge with tradeshows is that everybody wants to buy them, particularly the strategic players. When they do come up for sale, there's always a high degree of interest," he said.

Despite tradeshows' popularity, Cheifetz doesn't expect a rerun of the past decade, when multiples zoomed into the teens. "The buyers are being very, very careful, and I don't see a return to the frenzy of the late-'90s," he said. "Companies will be a lot smarter this time around."

It's not only quality that puts spring in a buyer's step. In a market jostling with well-financed former executives hoping to build their next companies, size also matters.

"The financial players are more attracted to large deals. For them, money is not the object; it's the ROI. Most have hundreds of millions to invest. When you do bring a large deal to the market, the attention is quite keen," said Joel Novak, managing director of New York investment bank Berkery, Noyes & Co.

Although most stress that the prices fetched for M¦C and Thomson are related more to their quality than a trend to higher valuations, financial advisers note that prices are bound to rise due to higher demand. "The multiples are creeping up as a result of the competitive atmosphere," said Novak.

But Nick Curci, president of Westport, Conn.-based merger advisory firm Corporate Solutions, said transactions of $20 million and less will still predominate. "The M¦C Communications deal is the exception, rather than the rule. There's a lot of activity in the small and middle-market companies. That's really where the activity is being generated," he said.

Financial advisers differ on how active strategic players will be during the upcoming year. Curci and Crosland believe some of the large players will remain on the sidelines as they firm up their operations and balance sheets. The exception is dmg, which in recent years has been an active acquirer. "They are capable of big deals, and they really have a strong appetite to grow through acquisition," Curci said.

However, Phillips predicted a pickup in activity by other strategic players too. "Both Reed and VNU are looking again. We think that's going to be the overall trend in media in 2005. Many of the strategics that were less-active, buyers are starting to look at again," he said.