Dismal Economy Shrinks M&A Marketplace

The seeds of a global financial meltdown may have been sown more than a year ago – with the subprime mortgage crisis as the initial catalyst – but now, with breathtaking speed, the economic downturn that began in the United States has spread like wildfire, taking down not only some of this country’s most storied investment firms and banks, but financial institutions around the world.

Stopping for a moment and looking at the ever-evolving economic crisis as of press time – with the $700 billion bailout-slash-rescue in play, central banks around the world cutting key interest rates and lending money when and wherever possible to keep companies afloat – what does it all mean to the tradeshow industry, and how does it affect the once white-hot mergers and acquisitions market?

According to Jordan Edmiston, Group Inc.’s Third Quarter 2008 M&A Review that covers the entire business-to-business media industry, while the number of transactions from January through September of this year dipped only 2.7 percent to 619, compared with 636 deals in the same period last year, it’s the deal value that tells the real story of the current state of the market: That fell a whopping 69.6 percent.

“These are very difficult times right now,” said Richard Mead, JEGI managing director.

According to the JEGI third-quarter review, the exhibitions and conferences segment, on the other hand, fared significantly better. In the first three quarters of 2008, there were 40 deals, compared with 51 in the same period last year, a 22-percent decrease – but deal value fell only 3 percent.

Even in tough economic times, Mead said of tradeshow M&A activity, “There will (continue) to be ongoing transactions, though they will be smaller ones.”

The largest transaction tracked by Tradeshow Week in the third quarter was dmg world media’s $53 million deal to sell its portfolio of 38 American consumer home shows to Marketplace Events, a new business formed by Stephens Capital Partners, an affiliate of Stephens, Inc., a privately held investment bank in Little Rock, Ark.

However, deals of that size will most likely be few and far between, especially with some of the biggest buyers in the market, private equity players looking for bigger fish to fry – such as Veronis Suhler Stevenson, whose $1.14 billion buy of Advanstar Communications was the biggest last year – sitting on the sidelines waiting for credit markets to free up.

“There’s been real damage in the credit markets that will take time to heal,” said Mike Iannelli, managing director of Lincoln Intl. “I don’t think that private equity will just flip the switch back on and start making deals again. I think we have a way to go before we see private equity do business like they did 18 months ago.”

Kathleen Thomas, managing director of Berkery Noyes, said that, in order for private equity to get back in the game, there would have to be “more liquidity in the credit markets.”

Mead said, “The private equity buyers that are really keen on tradeshows are having a tough time.”

Cutting the key interest rate, combined with the $700 billion bailout may, or may not, do the trick. “The hope is the bailout will stabilize the overall market and begin to loosen up credit,” Thomas said.

Even so, according to Iannelli, the bailout may not be enough. “I think the real question is, how does this back up into a recession?” he said. “The challenge is, when basic credit is not being afforded to businesses that need to grow, there will be a slowdown in the economy.”

Even with private equity for the most part out of the picture, there are deals being made, though they tend to be smaller single-show transactions between strategic buyers, such as Urban Expositions’ third-quarter acquisition of the Boston Gift Show from dmg world media or JDEvents’ purchase of the School Building Expo from Eaton Hall Exhibitions.

“Strategic buyers are always looking for transactions,” Mead said. “For example, Reed Exhibitions clearly has the financial resources to buy.”

Thomas said, “Single-show sales are certainly easier ... (because) most (of the) time, they don’t require third-party financing, making the current environment less impactful on their getting done.”

Most observers believe at some point the downturn will reverse course and start trending upward again.

“The $64 billion question is when,” Iannelli said.

Thomas said, “I think we have another several months of uncertainty before we start seeing things open up.”

Mead agreed, adding, “I think everyone is just going to hunker down.”

For the meetings, events and tradeshow industry, the glass is more than half full, Iannelli said, “because people realize that face-to-face is more effective for sell-through. I think that smarter marketers have come to that conclusion.”