Mergers and Acquisitions: Big Deals on the Backburner

In the spring of 2007, around the same time private equity firm Veronis Suhler Stevenson bought Advanstar Communications for $1.14 billion, New Century Financial, one of the biggest sub-prime lenders in the United States, had the trading of its shares suspended amid fears it was headed for bankruptcy.

Both events were seminal, but for different reasons. Advanstar would probably be one of the last U.S. business-to-business deals of such magnitude for some time. New Century's crisis would signal the first of an ensuing tide of problems tied to shaky adjustable-rate mortgages given to sometimes high-risk borrowers that would lead to an economic crisis the size of which is still to be determined.

What all this means for the mergers and acquisitions market in the B-to-B media and tradeshow industry is less than clear, except for one thing: Even though deals were still being made in the first quarter of 2008, they were – and continue to be – significantly smaller.

Investment firm Jordan Edmiston Group Inc. in its 2007 Media & Information Industries M&A Activity report tracked 66 deals last year involving exhibitions and conferences. JEGI valued these deals at slightly more than $1 billion (not including the Advanstar deal, which falls under JEGI's magazine category), compared with 52 deals in 2006 valued at $875 million. While the number of deals was up nearly 27 percent, their average value was down from $168 million to $159 million.

“The average deal size was slightly smaller, but I wouldn't put a lot of weight into it,” said Adam Gross, JEGI vice president of marketing. “The difference is very minor, and one transaction could completely turn the numbers around.”

Another investment firm, Berkery Noyes, also downplayed the effect of the credit crisis on the B-to-B M&A market in its 2008 Outlook + Strategies report: “The strategic information, media and technology companies we serve are, by and large, strong, profitable and aligned for growth, primarily through acquisitions that complement or extend their existing businesses.”

Again, despite this optimism, the report pointed to another reality: “We do expect a significant fall-off in private equity transactions above $2 billion as investor-backed funds focus on mid-size acquisitions in the $25 million to $500 million range to round out their portfolios.”

Kathleen Thomas, managing director at Berkery Noyes, said she didn't expect the return of the mega-deal until later this year. “We may see foreign capital as the driver of the resurgence in that market,” she added. “Mid- to small-market deals have not slowed, and we are as busy as ever executing them.”

Nick Curci, president of Corporate Solutions, agreed with Thomas' assessment. “With limited borrowing potential, buyers are forced to focus on smaller deals that are financed with internally generated cash flows, which is the reason for the increased number of smaller-sized transactions last year,” he said.

With the threat of economic downturn still nascent, the last quarter of 2007 did see one multibillion-dollar deal: The United Kingdom's Guardian Media Group and New York-based private equity firm Apax Partners bought the B-to-B publishing unit of Emap for $2.4 billion.

In the tradeshow universe, the biggest deal involved WSA Global Holdings, owner of The WSA Show, a semiannual event for the shoe and accessories market, ranked Nos. 4 and 6 on the 2007 TSW 200. ENK Intl., which produces 22 shows annually, bought WSA, making The WSA Show its largest property by far.

Some companies looked beyond the U.S. and Western European markets to expand their portfolios. Reed Exhibitions Middle East acquired six shows in the United Arab Emirates from Trans Continental Fairs Management, and the Tarsus Group bought WR Kern Organization, the U.K.-based holding company of Fairs & Exhibitions, which has eight shows in Dubai, U.A.E.

In the supplier sector, Smart City's purchase of Convention Communications Provisions Inc. locked up services at the Kentucky Exposition Center and Oregon Convention Center.

GES Exposition Services also went beyond its core business model and bought Ethnometrics, a consulting company that analyzes attendee behavior and interaction with exhibits and booth staff in order to increase exhibitors' sales effectiveness.

Following the slow holiday season, 2008 got a relatively sluggish start, as buyers sat out the first quarter. Eventually, Reed Exhibitions once again opened its purse strings to buy the InterCharm shows in Moscow from Russian organizer Staraya Krepost, and PAP-FOR, a Russian paper industry show, from E.J. Krause and Associates.

As the quarter progressed, a few other deals involving events entered the pipeline including VSS' acquisition of U.K.-based Clarion Events and CMP's purchase of Gartner's Vision Events portfolio.