Sellers' Market Has Risks, Opportunities

Exhibition and conference merger-and-acquisition activity is on the upswing. According to Jordan, Edmiston Group Inc., the number of first-quarter exhibition and conference transactions increased by 29 percent year over year, and the value of the deals was up nearly 17 percent. Last year's exhibition and conference deals had a value of $921 million, up from $108 million in 2003.

Tradeshow and business-to-business media properties' predictable cash flow makes them attractive to investors. Buyers also like the fact that shows and magazines require little capital investment. Part of today's investment rationale is that the continuing rebounding economy will trickle down to benefit show producers. Low interest rates have also helped fuel deals.

In the current M&A wave, financial buyers, usually investment funds, are edging out strategic buyers, companies established in an industry. Why are so many financial buyers, and private-equity buyers in particular, investing in tradeshows and trade magazines?

The simple answer is that the buyout industry is awash with cash. The Wall Street Journal estimates that private-equity funds have access to $1 trillion in cash and debt. Investors are competing fiercely for quality deals throughout the global economy.

The more complex answer is that show producers are still integrating previous acquisitions and focusing on organic growth. I suspect that a number of these firms are simply not ready to risk 10 to 15 times operating cash flow to make another culture-changing, large-scale acquisition, especially at a time when nearly every major media category (both B-to-B and consumer) is being transformed by new technology.

Moreover, only a handful of show producers and B-to-B media companies are active buyers. These firms are selectively buying and selling off shows; or their parent companies have other priorities. It's interesting that for-profit show producers (Advanstar Communications, Cygnus Expositions, dmg world media, Primedia Business Information, Reed Exhibitions and VNU Expositions) have different strategies, holdings and parent company relationships.

In the late 1990s, many show producers pursued a "bigger is better" strategy. But with shows so closely tied to the health of the industries they serve, success has been predicated on owning shows in growing sectors. Today, for-profit show managers have no single overarching strategy.

In this environment, here are some of the opportunities:

• New services and revenue streams. The industry has not had to innovate to grow, because the traditional tradeshow model works well and can be highly profitable. But to compete with other marketing media and to add value, show producers need to develop new services and revenue streams. These can focus on extracting intelligence from buyer and seller communities before, during and following shows; providing event marketing consulting and custom event management to exhibitors; and enhancing Web-based services.
  The events industry is experiencing solid growth. But what if growth stalls or if electronic marketing continues to win more share of corporate marketing spending? The industry may need a broader base of services than just selling space and sponsorships.
• More education. Those working in complex markets require continual training and information. The need for adult and corporate education and training will continue to grow. The trend of shows enhancing their educational content will continue. One of last year's biggest deals was Bain Capital's investment in M¦C Communications, which is as much an education provider as show producer. More show producers may need to become educators.
• Technology. During the last M&A wave, financial players hoped tradeshows and magazines would develop a closer link to the Internet. At the time, developing e-commerce portals for attendees and exhibitors was considered to be a big opportunity. Still today, many shows' technology has not expanded beyond Web sites and e-mail.
  Opportunities for more robust attendee-marketing software development seem promising, considering that many shows' attendee-marketing programs merely consist of a few large Excel files. Electronic matchmaking has also been gaining more attention lately.

Now for the risks:

• Show launches. In today's tradeshow industry, it's difficult to launch new shows. Of more than 3,800 B-to-B conventions and tradeshows listed in the 2005 Tradeshow Week Data Book, only 32 are new launches. Many exhibitors surveyed say certain sectors already support too many shows. While show launches won't get easier, there are still significant opportunities in many sectors that require a higher-risk appetite.
• Power of associations. Associations run more than half of all conventions with exhibits. Thus the pool of quality acquisitions will always be contained. And this small pool makes the truly standout shows and properties that come to market more expensive. Sure, associations have sold their shows in the past, and more will sell in the future. But half of the market will essentially remain off-limits to acquirers. And many of the largest, most profitable and fastest-growing shows are owned by associations.
• Timing. If you've recently invested in a show organization, it's key to move quickly to make changes, hire staff and communicate with attendees and exhibitors. Even if the show won't be held for many months, it's not too early to get the right team and strategy together. Events live and die by adhering to schedules and maintaining trust with attendees and exhibitors. That's most of what an investor is buying when it takes ownership of a tradeshow.

It used to be said that a show could survive two or three poor events before exhibitors would leave. This multi-year margin of error is now closer to one or two years.