Transaction Frenzy: Will '06 Set a New Record?

By Margo McCall -- Tradeshow Week, 1/23/2006

Last year's media mergers even surpassed the record set during the previous high watermark of 2000. Now, as a new year dawns, many wonder: Will media merger and acquisition activity be able to maintain its frenetic pace?

Tradeshows remain attractive investments, as evidenced by CMP Media's purchase this month of Shorecliff Communications and MediaLive Intl.'s technology shows. But financing costs are inching up, and the naming of a new Fed chief has caused some uncertainty.

Still, most are fairly optimistic. "We don't see any signs that '05 is the peak," said Richard Mead, managing director of Jordan Edmiston Group Inc. "We see plenty of supply of good quality properties and plenty of buyers. And the money is there because the banks are very supportive."

AdMedia Partners uncovered similar sentiments in its survey of media executives at American Business Media's November management meeting. Some 62 percent of business-to-business executives were interested in buying this year, while 22 percent intended to be sellers. Only 20 percent expected to stay on the sidelines. When it came to events, 51 percent were interested in buying, 10 percent expected to sell and 39 percent intended to remain inactive. Similar intentions were expressed during last year's survey.

Tom Kemp, managing director at Veronis Suhler Stevenson, also foresees another busy year. "Overall, I think the M&A market will continue to be very robust for 2006, particularly for quality tradeshows," said Kemp, who oversaw numerous acquisitions while Penton Media's CEO. "But my view is that the market has probably peaked in terms of valuations. It certainly is not getting any higher in terms of multiples."

However, executives who participated in the AdMedia survey foresee higher valuations ahead. Respondents said they would be comfortable buying events this year at multiples of 7.7 times operating cash flow and selling them at a 9.4 multiple. That represents a 22-percent increase over buyers' 2005 expectations and a 19-percent increase over sellers' 2005 expectations.

Kemp views DLJ Merchant Banking Partners' withdrawal of Advanstar Communications from the market as a sign that valuations have peaked. "The fact that the Advanstar deal was a busted auction was perhaps a watershed in terms of the M&A market. It's clear that the valuations that the buyers were offering were inadequate relative to the expectations of the sellers," he said.

However, Bob Crosland, managing director at AdMedia Partners, believes the withdrawal is more reflective of the record $900 million that DLJ spent for Advanstar in 2000 than the current state of the market. "The very fact that they put it on the market tells you that this is a good time to sell. That shareholders are seeking exit strategies now is testimony to the strength of the market."

But he cautioned that sellers shouldn't dillydally. "It could be that this is the highest peak we'll ever see in B-to-B. If you have any intention of getting out of the business in the foreseeable future, do it right now," he advised.

As in the real estate market, low interest rates have driven M&A activity. The high-yield debt curve has been flat, meaning that it's just as cheap to borrow money over the long term as it is over the short term.

"It's really helped keep the prices up, the fact that long-term debt has been very cheap over the last few years," Crosland said. He warned that flat yield curves are an anomaly, and usually followed by a recession.

Crosland said it's worrisome that financial players, rather than strategic players, are snapping up most of the large properties. The scenario could be indicative of companies wanting to exit cyclical markets.

"The traditional B-to-B companies are feeling like this is a sunset industry. They want to be in the information business. They don't like things that go up and down," he said.

Kemp is also puzzled that more strategics aren't in buying mode. "There hasn't been a lot of activity among the large strategic buyers. There's not a Miller Freeman out there buying businesses."

The strategics, however, haven't been shy about putting some properties on the market. Advanstar last April netted $185 million from the sale of five divisions to Questex Media Group, backed by the Audax Group and headed by Advanstar executive Kerry Gumas. Jupitermedia sold its entire portfolio of technology shows to focus on the digital image market. Primedia divested its business information unit, which included 20 tradeshows. And Reed Exhibitions recently put its roster of manufacturing shows on the market.

There was also speculation that VNU would sell its business unit, which includes VNU Expositions and its 58 tradeshows. But now that shareholders have scuttled VNU's $7 billion acquisition of a health care company and forced the company's CEO to resign, that's not likely to happen, at least until a new CEO is named and a new acquisition target identified.

But as Kemp notes, many of today's strategics were yesterday's financial players.

"The strategics of the future will be the large platforms of the private-equity firms," he said.