April 2005
What’s Your Show Worth Now?

Backed by generous lenders and low interest rates, equity investors like Tom Kemp are in the market for robust media properties with rich customer databases. Strategic buyers looking to strengthen their competitive positions aren’t far behind. Find out if your show could be an acquisition target.

By Cathy Chatfield-Taylor



Putting a price tag on an exhibition is not an exact science. If you ask six experts to calculate how much your show is worth, you’re likely to get six different answers.

“At the end of the day, the value of the property is based upon what a willing buyer is willing pay for it,” says Tom Kemp, Managing Director, Veronis Suhler Stevenson (VSS, www.vss.com), a New York-based merchant bank serving the global media, communications and information industries. “That’s why formulas don’t always work.”

Regardless of whose valuation formula you use, that number is just a starting point. The market sets the ultimate price. And by all accounts, the market for media properties is hot. Mergers and acquisitions (M&A) activity in the exhibitions and conferences sector rose by 27 percent in 2004, according to the Jordan, Edmiston Group Inc. (JEGI), a New York-based investment bank in M&A for the media and information business. The 23 deals done last year totaled $921 million in value — up a whopping 753 percent over 2003.

Tracking the top media deals of the past year, The DeSilva & Phillips Report 2005 put Bain Capital’s purchase of M|C Communications at No. 1. The private equity and venture capital firm snapped up the medical conference and exhibition company for $450 million at a widely reported multiple of 12 times annual cash flow.

That deal sparked interest in the prospects for selling media properties at multiples comparable to those of the M&A heyday in the late ’90s, when EBITDA (earnings before interest, taxes, depreciation and amortization) multiples rose to double-digits. After the tech bubble burst and 9/11 plunged the economy into recession, multiples plummeted to low single digits then rebounded during the recovery. Last year, B2B media deals greater than $50 million were done at 9.5–10 times EBITDA, according to the DeSilva & Phillips report.

The outlook for 2005 is rosy. By all accounts, demand will outstrip supply for media properties with growth potential. In an environment where investors are liable to court companies that aren’t for sale, it’s wise to know what your events are worth.

“If you evaluate the fair market value, that’s the price a hypothetical buyer would pay the hypothetical seller, not considering strategic benefits and synergy,” says Mike Eggers, Principal, American Business Appraisers LCC (ABA, www.abasf.com), a Danville, CA-based member of the American Business Appraisers National Network, specializing in business valuation and litigation consulting services. “If you get a specific buyer, you have to ask, ‘Why do they want it?’ It’s always our advice to sellers: Know the fair market value, then estimate the investment value for each actual potential buyer.”

To find out how to put a dollar value on exhibitions and the companies that run them, we talked to industry leaders representing both sides of the buy-sell equation (see sidebar on page 37). The bottom line for robust shows: It’s a great time to sell (and to buy).

Expect high single-digit multiples
What makes today’s M&A market hot? Our experts observe a confluence of conditions in available cash, credit and target companies.
“The market has clearly improved in 2004 and going into 2005 compared to the past couple of years, primarily as a result of a great deal of capital available for private equity investments in media in general, including trade shows, as well as more favorable credit markets to finance transactions,” says Kemp.

“Market valuations, along with activity, have improved over where they were in 2001, 2002 and 2003, when multiples had declined significantly as a result of less buying activity, unfavorable credit, and not that many attractive businesses to market because of low valuation,” Kemp says. “Transactions that occurred during that time clearly had lower multiples than they had in the ’90s. What we’re seeing now are multiples increasing back to historical norms.”

Historical norms, according to Kemp, are a high single-digit multiple of cash flow — in the range of 7–9.5 times EBITDA. But every transaction is different, and multiples are affected by factors such as growth rate, profit margin, size/scale and markets served. Hot markets with higher multiples include healthcare, financial, residential construction and retail/consumer products. Cool markets with less negotiating strength include manufacturing and some technology sectors.

As a rule of thumb, 7 times cash flow is the average starting point. Smaller operations may settle for lower multiples, in the 4–6 range, according to Nick Curci, President, Corporate Solutions LLC (www.CSmergers.com), a Westport, CT-based M&A advisory firm. Middle-market companies can expect multiples in the 6–8 range. And businesses above the $50 million mark can command higher multiples, in the 7–9+ range.

Equity buyers looking for investment platforms are active in today’s market. But strategic buyers have been slow to re-enter the M&A market, primarily because they’ve been focused on running their existing shows in a difficult economy.

 “The next important step in the M&A recovery for the trade show business will be when strategic buyers become aggressive again,” Kemp says. “When they have confidence that their business has stabilized and they’re achieving their targets, they'll become more active in growing their businesses and executing transactions. I predict that we’ll see increased M&A activity among strategic buyers in 2005, but it still won’t be as active as in the ’90s.”

As M&A activity steps up, demand may outstrip supply of target properties. According to AdMedia Partners (www.admediapartners.com) “M&A Snapshot Survey” conducted last fall, 51 percent of media company executives who responded planned to buy, while only 5 percent planned to sell. Bob Crosland, Managing Director of the New York-based media and communications investment bank, concludes: “The issue of product availability remains the key consideration for increased transaction volume and should be a primary driver of higher prices.”

Know fair market value
There are various ways to appraise the value of an event, but the best approach is to do a combination of calculations, then weight the values based on risk factors and market fluctuations. The three most common approaches to exhibition and conference valuation are public market and private market comparables (market approaches), and discounted cash flow (an income approach).

“If you do it right, there should be a consensus answer,” says ABA’s Eggers. “A 15 percent variance could be expected, because someone else might have a slightly different viewpoint, fact pattern or different assumptions.”

By comparing the prices public and private companies have sold for recently, you can get a relative idea of the price a similar company might command. JEGI (www.jegi.com),  DeSilva & Phillips (www.mediabankers.com)  and others routinely track deal activity in the media industry. Look at the numbers with a cautious eye. No two deals are alike, and the variables at play in any given transaction can inflate the multiple.

“The market comparables approach usually provides a higher answer,” Eggers says. “Those transactions have synergistic and strategic benefits to the buyers. The properties were more valuable to them, and the sellers/owners were paid a premium.”

The third valuation method is to estimate the net present value of projected future cash flows, based on reasonable assumptions and expectations. This income approach determines the value based on future net (discounted) cash flow. “That’s a rigorous process and has good thought and good mathematics, and should be done in conjunction with management,” says Eggers. “It will be a normalized (after economic adjustments) benefit stream.”

The process involves making pro forma adjustments, such as subtracting excess executive compensation from overhead expenses and eliminating costs that the new owner will not incur (e.g., country club memberships in a family-owned business or management compensation above market averages). This gives the prospective buyer a truer picture of the profit-and-loss potential under new management.

The income approach also takes into account the present value of future earnings and applies a discount rate for assessed risk. Intangibles such as brand equity, market dominance and exhibitor goodwill factor into this equation.

“Based on historical precedent, you project growth for five years, and take the present value of the projected profit stream, using some reasonable discount rate. That’s what you might expect to get in the market — that’s one way of calculating potential value,” says Joel Novak, Managing Director at Berkery Noyes & Co. (www.berkerynoyes.com), a New York-based independent investment bank serving the knowledge and information marketplace. “But when you go into the market, you’re not sure what will happen. If you have two buyers strongly interested, you could exceed the value by 20–25 percent.”

Estimate investment value to each buyer
Whipping up competition for your event is clearly the best way to get top dollar. Once you understand your fair market value, you can begin to estimate how much it might be worth to each prospective buyer. What would they be willing to pay to gain the strategic benefits of owning your property?

While financial buyers look for a platform to grow their equity in an investment, strategic buyers look for events that give them a competitive advantage in the marketplace — either through synergy with their existing properties, or by engulfing and so eliminating the competition.

“We were one of the most active acquirers during the darkest days of the recession,” says Paul Mackler, President and CEO, Cygnus Business Media (www.cygnusb2b.com), a diversified B2B media company based in Westport, CT. “We know what we want to add to our portfolio, and we called upon the companies, associations and magazines that had those properties. Most of the deals that we’ve done over the past few years were with companies that were not for sale.”

When he’s evaluating a strategic acquisition, Mackler looks beyond the balance sheet to the future growth potential once the property is integrated into his portfolio. Cygnus’ acquisition of the Ground Support Equipment (GSE) International Expo in 2001 and Aviation Services and Suppliers Supershow (AS3) in 2002 are an example of a perfect strategic fit.

“We saw the upside potential because we have strong publications and a strong online presence,” Mackler says. “We had the assets — customer relationships, market knowledge, brand strength — plus a professional trade show management company, to do a number of things that the association that owned AS3 and the private company that owned GSE couldn’t do, and we co-located them to create Aviation Industry Week. We offered suppliers greater access to market, more efficiency and better ROI.”

 To evaluate an event’s future potential, both financial and strategic buyers examine historical performance indicators and the trends they reveal. Is attendance flat, increasing or decreasing? Is the number of exhibiting companies — and the amount of space they buy — on the rise? Is exhibitor retention up or down over previous years? Are there unexploited market sectors that offer opportunities to expand educational programming or the exhibit hall product mix?

Buyers not only look at event track records but also at their databases. Subscription-based information companies are prime targets. Is there potential to diversify the product mix to include database marketing services or subscription-based content?

“To the extent that trade show organizers have detailed information about their attendees — demographic profiles, buying characteristics, etc. — and they have access to those attendees, they bring more to the table for prospective acquirers,” says Novak.

Cooperate fully during due diligence
Once both parties understand the fair market and strategic value of an event, the negotiations can begin. The process includes thorough fact-finding, with back-and-forth negotiations on the terms and conditions, which influence the bottom line price.

“Every seller wants to maximize value, and every buyer wants the optimal price. That’s part of the negotiation of any sale,” Mackler says. “In our case, we won’t overpay. We establish what we believe is a fair price, and that either meets the seller’s requirements or it doesn’t.”

Most deals run into trouble during due diligence, when unexpected findings — attributed to honest mistakes or deliberate withholding of information — or changing market conditions can derail the process. Negotiating a sale can be emotional, especially if the property is family owned. Third parties, such as investment banks or buyer/seller representatives, can remove roadblocks and pave the way to an agreement. These brokers typically work on a sliding scale, starting at 5 percent of the deal and going down 1 percent for every $2 million to $3 million, according to AdMedia Partners’ Crosland.

“You leave a lot of money on the table when you try to do a deal on your own,” he says. “You think you’ll save money, but you end up making much less.”

Without professional guidance, sellers may allow egos and personalities to interfere with rational valuation, or they may succumb to the allure of the double-digit multiples they’ve read about.

“The biggest hurdle in closing a deal for a client is having unrealistic expectations of what their company is worth,” says Curci.
Put together a talented broker, motivated seller and well-financed buyer in a robust market with pent-up demand, and a deal is likely to get done.

“It’s a good time to sell,” says Mackler. “And if you do your homework, it’s still a good time to buy.”