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April 2008
Preparing Your Show For Sale
Tips for getting your house in order before you go to market
By Linda C. Chandler
Getting the most value out of the sale of your show requires a lot of pre-planning, desirable market conditions, a strong management team, the right advisors and a host of other necessities. Whether you’re an entrepreneur looking to cash out, or an association executive looking for a long-term strategic partner, selling an event starts with managing your expectations. Here’s a look at what you can expect once you’ve made the decision to sell.
Biggest misconceptions sellers have
• Sellers often unrealistically overestimate the value of their shows compared with what buyers are willing to pay.
• Sellers tend to underestimate the time it takes to prepare necessary background for an offering memorandum, then work with a potential buyer through the necessary steps of the process.
• Sellers may not realize that they may get less money at the closing than the actual purchase price. (Money may be put in escrow or adjustments may be written into the contract.)
What helps determine a show’s value?
• How large the show is. Nationally well-known larger events will have more value than smaller shows.
• Revenue and profit trends over a minimum of three years — more likely five to 10 years if available
• Exhibitor renewal numbers and attendance trends. A good exhibitor retention rate is 65 to 70 percent or more.
• Whether the industry the show represents is growing, flat or declining.
• Whether a solid management team will accompany the business when sold.
• Whether the buyer owns complementary shows or media that are perceived as synergistic with the show for sale.
• Competing shows and/or potential competitors and their impact and growth.
• What relationships the show may have, such as ties to an association, publication or chief sponsors.
• Whether the show is maxed out in current space.
• Intangibles such as good will, brand recognition or the show’s market position.
What a seller must prepare to present to buyers
• Clean, clear financial records.
• A detailed, verifiable history and demographics for attendees and exhibitors.
• A summary of marketing programs to exhibitors and attendees.
• A clean, current database.
• An objective analysis of competitive events.
• Get all information in electronic form.
• Keep working on the next event. Buyers want to know forward bookings and the percent of exhibitors already signed up for the next show.
• Book dates at facilities and secure sponsorships for the long term. Buyers look more favorably on management that is prepared for the future, and if the sale falls through, the seller should be planning anyway.
Maximizing value
• Never do anything differently in running your show during a sale process (like cutting back on marketing or changing operating procedures). Proceed as if you weren’t selling.
• Hire a professional. To be on even footing with the buyer, seek an advisor or investment specialist who knows the mergers and acquisitions market.
• Timing is everything. Try to sell when you have good history and a growing show. Also consider the general economic climate. It might be smart to wait a year or two if the market isn’t good.
Getting your financial house in order
• Some entrepreneurs may have inflated salaries or perks that tend to reduce profits for tax purposes. A seller should account for any distortion that affects profitability of the show.
• Financial records should be on an accrual basis. If the owner has been working on a cash basis, a buyer may require restatement in accrual terms.
• Clean your records of any personal or inter-company loans, liens and uncollectible accounts.
• Be sure all taxes and invoices are paid and nothing is past due.
• Show all show-related expenses (and income) as line items. Don’t lump security, parking and decorating in with the facility rental and call it “venue expenses.”
• General and administrative expenses, such as office space, phones, copiers, etc., should not be counted as show expenses.
Financial benchmarks
Corporate Solutions, a Connecticut-based merger and acquisition advisory firm, offers these financial benchmarks to judge a show’s value. Benchmarks differ according to industry and show location. Generally, the larger the city, the higher the related expenses tend to be.
• General and administrative expenses average 15 to 20 percent of revenue.
• Facility-related expenses average 25 to 30 percent of revenue.
• Exhibitor promotion expenses average 5 to 10 percent of revenue
• The gross margin average is 40 to 50 percent of revenue.
• Net income averages 20 to 30 percent of revenue.
• Desired traffic density is 20 people per 10x10 booth. For example, a show with 400 booths would have approximately 8,000 in attendance.
Confidentiality issues
Potential buyers should be required to sign confidentiality agreements before they examine a seller’s offering memorandum or confidential information memorandum. Smaller offerings involving only a few potential buyers generally provide more privacy and tend to move more quickly and with less disruption to the business. Brokering in a wider auction process may increase the risk of leaks, but publicizing a show’s availability may result in more potential buyers.
How the money changes hands
Rarely does 100 percent of the cash price change hands when the deal is signed.
• You might get an initial cash payment and then “earn-outs” — additional money paid to the seller over one to three years if the show continues to produce increasing revenue. Often, in this case, the seller stays on to run the show.
• A buyer may offer cash to purchase a majority of the show and the seller maintains a percentage (e.g., 75/25).
• Buyers may put a percentage of the price in an escrow account to ensure that they’re not liable for any surprises — tax issues, lawsuits, contract issues, etc. — that were outstanding or not known at the time of the transaction, effectively deducting such costs from the sale price. Eventually, the escrow money is released to the seller.
• Though less frequent, stock transactions may be involved when larger, publicly held entities buy shows.
Why deals fail
• Inaccurate financial records, even if it’s honest error.
• Undisclosed legal problems.
• Inflated forecasts for future shows.
• Future dates and locations not booked.
• Owners become emotionally involved during the negotiating process.
• Abrupt changes in the economy or the industry.
Tips for associations
Kathleen Thomas, Managing Director, Berkery Noyes, makes these recommendations for associations selling shows.
• Appoint a divestiture subcommittee or point person to handle the day-to-day aspects of selling. They can present to the Board when it’s time for major decisions.
• Unlike private show owners, associations will typically stay involved with the show once it sells. Determine the conditions you’ll want going forward — usually, at a minimum, input on how the association name is used and a royalty based on a percentage of the show revenue.
• Evaluate how you’ll be replacing the show cash flow. Though the sale may add several million to your coffers, analyze the cash flow you’ll get from the interest off this amount and the annual royalty payment. It may be less than your current profit — and that may be OK depending on your reasons for selling (usually a desire to invest more in education and lobbying, or to diversify risk).
Linda C. Chandler is a freelance writer and editor based in Tyler, TX. She has written for association and convention publications for 19 years and is an active member of Tyler CVB’s tourism committee. Contact her at linda.chandler@earthlink.net.
Private deals between two parties may close in as little as two months. The norm is closer to four to six months. Complex deals involving several potential buyers or the sale of multiple shows may take longer — from a year to a year and a half.
Step 1: Prepare financial records, event history and other elements of the offering memorandum.
Step 2: Set an initial valuation.
Step 3: Announce availability or submit offering memorandum to potential buyers, under signed confidentiality agreement.
Step 4: Seller responds to requests for more information.
Step 5: Buyer sends letter of intent to seller.
Step 6: Due diligence (in-depth examination of the records, interviews with key personnel, discussion of transition).
Step 7: Price and terms negotiations begin.
Step 8: Contracts are signed and deal is closed.
“You should prepare to sell your show from day one. Even if you never expect to sell, focus on sophisticated business practices and manage your business professionally. Keep well-organized and updated financial records, documentation of history, leases, contracts, audits and any other pertinent information. It could take months to reconstruct this background necessary for a transaction.”
— Thomas Kemp, Managing Director, Veronis Suhler Stevenson
“In considering your timing in selling a show, focus on the future growth prospects of your event. You will maximize the value of the show if you sell when there remains demonstrable upside to the growth of the event and the industry it serves. Mature events in mature industries sell for lower multiples than growing events in growing industries, so always be looking a year or two out at the prospects for your show, your customers and the industry.”
— Kathleen Thomas, Managing Director, Berkery Noyes
“Once the sale process has begun, it is critical for sellers to ensure that the business delivers, or preferably exceeds, what buyers have been told about the current performance of the show – exhibitor and sponsor bookings and attendee sign up. Any slippage most likely will impact valuation negatively.”
— Richard Mead, Managing Director, Jordan Edmiston Group, Inc.
“If you’re considering selling your shows, it’s important to retain a reputable investment banking firm that specializes not only in the event marketplace, but one that specializes in the size of the market you fall into. An experienced investment banker will take the emotion out of the equation for you during the sale process while you continue to run your business as usual.”
— Nick Curci, President, Corporate Solutions
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