Hal Greenberg: The Money Man

In the past year, the biggest U.S. business-to-business media deal by far was Veronis Suhler Stevenson's April 2007 $1.14 billion acquisition of Advanstar Communications, just one of many companies that the private equity firm has bought or sold in the last decade.

These companies include Canon Communications and Hanley Wood Exhibitions, both now in other hands. Then there's Access Intelligence, which VSS still owns, along with the recently acquired Clarion Events and an interest in Red7 Media.

As managing director of VSS and co-manager of VSS Structured Capital, Hal Greenberg has been on the front lines of many of these deals. With a background in media that includes stints at CBS Corp.'s and McGraw Hill's development departments, Greenberg is no stranger to growth through acquisition.

And, according to him, VSS is always on the lookout for the next big B-to-B deal.

The advertiser-driven publishing industry may have suffered in the last few years, as marketers have shifted some of their budgets from print to the Web, but tradeshows have continued to thrive, experiencing an astonishing 6-percent annual growth rate in 2007, according to Greenberg. With that in mind, he added, even with an economic downturn underway, VSS always has its wallet open for companies that make sense.

TSW Associate Editor Rachel Wimberly spoke with him about the appeal of face-to-face marketing and the state of the economy.

Question: A significant part of Veronis Suhler Stevenson's strategy is to acquire B-to-B companies with tradeshows. How did the firm's most recent deal, the acquisition of U.K.-based Clarion Events, fit into that strategy?

Answer: We as a firm have had a long history and fantastic results investing in tradeshow companies. This is just another one that we think very highly of, and the management team and their position in the served market. Fundamentally, the tradeshow industry has done very well for us as an investment, whether it be Hanley Wood or Canon (Communications) and its tradeshows. We just like the tradeshow business.

Q: Why?

A: We predict the tradeshow business will grow on an annualized basis by about 6 percent a year, and that compares to the kind of flattish growth on the advertising side of B-to-B. The growth rate for B-to-B trade advertising is 1 to 2 percent.

Q: Why do tradeshows continue to be so lucrative?

A: Five years ago, in the bubble of 2001, everyone thought that there would be a digital or virtual tradeshow. … To tell you the truth, we invested in some of those businesses, and they never panned out. They were not good investments for us. I think really the old-fashioned meet-and-greet ... works better in a face-to-face environment. To this day you can't point to any other statistic that disputes that. The great thing about a tradeshow is it's a networking event. How do you do that in a virtual world? It's very hard.

Q: The pace of deals slowed in the fourth quarter of last year and the first quarter of this year. What types of deals do you see going forward in 2008?

A: One of the biggest issues is the bank financing market. (That) market is not particularly strong in the early part of this year, so there could be a struggle to complete some deals.

I will tell you that good deals always sell for attractive multiples and get done. It might take a little more equity by the private equity firm. It might take a little bit more money by the strategic acquirer. But when good tradeshows come up for sale, like Clarion, they usually get done. There's usually competition to buy them because they don't come up that often.

Where it will have some impact is on smaller shows and more marginal shows and those without a long, or strong, track record.

Q: Has the highly publicized sub-prime mortgage crisis had any impact on the kinds of deals VSS makes?

A: It's a fallout of the sub-prime mortgage-related issues, but there's just a backlog of very large bank loans trying to clear the market and, until that clears, which is probably six to nine months, it's become more difficult to get a large round of financing done. It's hard to clear loans more than $500 million.

Q: Are the credit markets affecting the way you do business right now?

A: A little bit. Most of our deals are smaller than where the problems are, so we can get bank financing in what we call a “club deal,” where you put together two or three banks (with) $50 million to $100 million each. That's feasible. The problem comes in bigger deals when they need to syndicate the loan, sell it off in the open market. That's when you have a problem in today's market. There's not a lot of secondary buying.

Q: What will have to happen for an economic recovery to take hold?

A: I'm not so sure the tradeshow industry has been hurt by the economy yet and, historically, when it (has been) it's ... a minor hit. It's not as big a hit as the advertising side, and there are some reasons for that.

You can always pull advertising and go back in. In the tradeshow world it's a once- or twice-a-year event, and if you miss the event you've missed the whole cycle. So, when a client's looking at 'what am I going to cut,' they'll probably cut advertising first.

Q: Reed Elsevier (TSW's parent company) has put its publishing unit, Reed Business Information, up for sale, but is holding onto its tradeshow division. Rumors about Nielsen Business Media doing the same thing are circulating. Is the publishing side of B-to-B in trouble?

A: There's always been two different points of view. One point of view was that a good trade magazine works well with a good tradeshow and they work hand in hand. The other one, which is Reed's, has always been to keep them apart and there's really no linkage between the tradeshow and the trade magazine.

I think most companies do it the former (way), which is keep them together, but some of the bigger ones like Reed and Nielsen have a strong tradeshow division and strong magazine division that don't match.

(On the other hand) PennWell and Canon Communications, for example, their trade magazines line up fairly well with their tradeshows. They cross-promote and that's the great advantage of their magazine.

We've always been a believer in linking the two, but that's not always the case.

Q: What else makes tradeshows stand apart from publishing?

A: (Another) reason from a private equity perspective that tradeshows are great businesses, as opposed to magazines and advertising, is the cash-flow dynamic, because all the cash is paid up front for a tradeshow.

Before you put on the event you actually have the cash, where in (magazine) advertising you have it 60 days later. From a balance sheet or cash-flow dynamic, tradeshows are great businesses for private equity.

Q: Without naming names, do you have any significant tradeshow deals in the works right now?

A: None that are imminent, but we're always on the lookout for them, and they're always in some stage of being evaluated. A lot depends on what's out there for sale. At times, it's not even done by us directly, but by one of the companies we own. … The Advanstars and Access Intelligences of this world, they always look at stuff.

Q: Why do private equity companies typically buy and sell companies in relatively short time frames?

A: The structure of most private equity funds is a 10-year life. Therefore, you need to invest and liquidate that fund within a 10-year period. The money has to go back to the investors, and the investors are the lending partners in the fund. They want their money back and the only way to (do that) is to sell the company.

Q: What's the appeal of face-to-face?

A: In order to understand the product when you look at the medical device world, for example, it's all new products, and (people) like to go see these products. The cost of these products are relatively expensive so to buy it online, a $20,000 product, it's not that easy to do.

We've owned tradeshows across all different segments from medical device to construction to fashion. We own a satellite show in Access Intelligence. We've had great, great success.

Q: How did you parlay your media background into what you are doing now?

A: This firm only does media. I have an extensive background from CBS and McGraw-Hill, so the transition to a media fund … is an easy transition.