June 2008
Growth: Organic, Launch or Acquisition?
What’s the best way to grow your business? The experts make their cases.
By Dawn J. Grubb
Tim Andrews
President & CEO
Advertising Specialty Institute
Trevose, PA
www.asicentral.com
Largest show: ASI Orlando, 5,831 attendees, 832 exhibitors, 122,400 NSF
Scott Goldman
President
Eaton Hall Exhibitions
Florham Park, NJ
www.eatonhall.com
Largest show: School Building Expo, 700 attendees, 200 exhibitors, 20,000 NSF
Michael Behringer
Board of Directors
Canon Communications
Los Angeles
www.cancom.com
Largest show (colocated): Medical Design & Manufacturing (MD&M) West, Electronics West, Pacific Design & Manufacturing, PLASTEC West,
WestPack, ATX (Automation Technology Expo) West, and Green
Manufacturing Expo; 47,674 attendees, 2,244 exhibitors, 383,990 NSF
In 2006, Canon Communications acquired OctoMedia, producers of the leading trade show and publication for the United Kingdom’s medical device market. One of the world’s top five medical device markets, the UK was a place Canon had little presence, and the acquisition enabled the firm to launch new products, buy complementary businesses, and quickly expand its European footprint.
Walking the exhibit floor at the Institute of Food Technologists in the 1990s, Scott Goldman saw a business opportunity. Mixed with food ingredient vendors were companies showcasing instruments and equipment for testing food safety. By 1999, he had launched the Food Safety Summit, giving these out-of-place exhibitors a home of their own. Goldman sold the show in 2006.
Moving a successful show from its long-time locale can be a risk. But it was one the Advertising Specialty Institute (ASI) was willing to take in 2007. Wanting to gain footing in the Manhattan, NY, market, they relocated ASI’s successful Northeast event from Philadelphia to New York City. As a result, the show’s attendee and exhibitor numbers jumped 50 percent.
Three different organizations. Three strategies for growth. All successes. So what really is the best growth strategy? Organic growth from an existing show? Launching new shows? Acquiring shows?
As with most business strategies, there’s no right answer. And although our panelists agree that at any given time, and under the right circumstances, all three strategies will work for just about any organization, for purposes of this analysis, we’ve asked them to advocate for the strategy they typically use to grow their businesses.
EXPO: Explain why your growth strategy is right for you?
Behringer: We use acquisitions to expand into complementary industries, as well as move into new markets and territories. When we acquired Canon in 2005, it was primarily focused on the U.S. medical device manufacturing sector, an approximately $200 billion industry. Canon also served a number of related industries, such as specialty packaging and plastics.
We saw the opportunity to grow by widening Canon’s focus to the $1 trillion worldwide advanced manufacturing industry, such as biomedical, machine construction, and pharma manufacturing. In 2006, we acquired several advanced manufacturing trade shows from Reed Elsevier — including National Manufacturing Week, Assembly, Quality, and Powder Bulk Solids — all of which were highly complementary to our medical device show, Medtec. We colocated many of these in Chicago with other Canon events.
We achieved two important strategic goals with this deal: We quickly expanded into the advanced manufacturing sector and were instantly able to offe customers highly valuable products and services; and we gained a physical presence in the Chicago/Midwest region where we previously had none.
Goldman: We launch events in small categories that are underserved. We’ve launched because someone has come to us and said, “I’d like to see a show for that.” Our model is to find new markets, build a show, and sell it. While we run shows on a scale that a Penton or Reed might not be comfortable with, these companies take over when we’ve grown it to a successful point and it’s big enough to fit into their organizational model. I enjoy being the incubator for new ideas, and then turning them over to places better suited to long-term growth and development.
Andrews: Extending something that you already have is cost-effective, because you can leverage what you know. For example, we found that many attendees of our ASI Show wanted to know more about the embroidery and screen printing industries. We publish Stitches magazine, and this year we launched the Stitches Roadshow in Detroit, Denver, and St. Louis — three key markets with a high concentration of subscribers. We colocated these shows with our popular Advantages Roadshow and saw our attendance double.
We were able to leverage what we know — from where potential attendees were to what attracts people from a marketing standpoint.
EXPO: What are the pros and cons of your strategy?
Behringer: We always conduct the “build vs. buy” analysis when evaluating acquisitions. The benefits to buying generally tend to be speed and predictability. Acquisitions enable you to immediately have a sizable presence in a market. Also, a business that made $5 million in revenue last year is more likely to make $5.5 million this year than one that made $0 last year. Those are two important factors for private equity investors like us. Another
benefit is expertise. We’ve benefited from the market knowledge, skill set and talent that have come with an acquired business.
There’s always an integration risk with any acquisition. Buyers need to pay attention to all the issues that can arise from combining businesses — from different corporate cultures to establishing common reporting structures and systems. These issues can be particularly risky when doing larger deals or when entering into medium markets or markets that you’re not currently active in.
Goldman: Ideas are free, and that’s a big plus for smaller, entrepreneurial companies like ours. You can identify an opportunity, pursue it, and don’t have to pay for it. I’m a serial entrepreneur, and the pursuit of ideas keeps me challenged every day. Ideas are everywhere. I find them in the news, in magazines, on TV, driving down the street, even standing in the shower — I own a diver’s white board and jot down ideas while showering.
Andrews: We’ve been really successful because our industry is underserved and attendees want regional shows. Two years ago, we launched the Advantages Roadshow, ASI’s traveling show that visits 70 cities across the country. There are about 130,000 employees of distributors in our industry. Last year, we had 20,000 attendees at our five ASI Shows that were unduplicated and 10,000 unduplicated at our Roadshow. That leaves 100,000 people we haven’t reached yet.
At some point, you’ll run out of opportunities. When you have 70 to 80 percent of a market participating in a show, you’ll have to find a new growth strategy. We haven’t hit that point yet.
Another con is missing an opportunity in an adjacent marketplace. For example, our show focuses on traditional promotional products, but there are trophy shops and quick print businesses that could have opportunities. Be careful you don’t have your blinders on and miss opportunities to grow in complementary industries.
EXPO: What risks are there to your strategy?
Behringer: Buyers must have a good plan for where to take a business. It’s important to ask what value we bring to this asset that the prior owner couldn’t. Maybe it’s capital, maybe it’s industry expertise, maybe it’s management attention. There must be something.
We try to be realistic about the value we can bring. For example, I’d never buy a cable system from Time Warner Cable. If they can’t make those assets work, what can I possibly do that’s better? It’s important to be reasonably humble when approaching acquisitions. Everyone likes to think they’re smarter than the next guy, especially those of us in mergers and acquisitions — that’s our DNA. I’ve seen a lot of buyers get tripped up after convincing themselves that they have all the answers.
Goldman: Launching into a new market, you always worry that attendees won’t come. Your attendee response comes at the point where everything else is already committed to. Attendance is always what keeps us up at night.
EXPO: Under what conditions would you advocate for one of the other strategies?
Andrews: Growing through acquisitions could make more sense when the cost savings outweigh the costs of growing organically. However, there may also be more risk in that case, because you may be trying to expand into another industry that’s lesser known to your business. Using new launches to grow your business might be beneficial if your customers are asking for a new show and there’s sufficient demand.
Goldman: A bigger organization is probably better suited to an acquisition, since the asset they have is money. And I’d pursue the organic growth when holding a show with lots of remaining growth potential, for example, in a rapidly expanding category.
EXPO: How organizations determine which of the three strategies is right for them?
Behringer: This is driven by the opportunities and needs that exist in each show organizer’s market. A younger, growing market tends to provide more organic growth and expansion opportunities. A mature, well-served market tends to provide more acquisition opportunities.
Goldman: You assess your strengths and capabilities, and match them to each strategy. If you’re adept at growing shows, organic makes sense. If you’ve got financial strength, you can put money into an acquisition. And if you have ideas and a team that enjoys new challenges, launches are a good fit.
Andrews: Ask your customers. Determine which strategy would provide your customers with the highest return on their investment, while also being in alignment with your planned business costs.
EXPO: Has the economy affected your strategy?
Behringer: Buying quality assets that service strong markets is an approach that doesn’t change with the economy. Times like this often produce very attractive acquisition opportunities.
Andrews: It hasn’t. In fact, our industry is growing. In 2007, our industry was up 4 percent from 2006. And the first quarter for this year is up 4 percent from last year.
One thing that makes our Advantages Roadshows popular is that they’re within an hour’s drive for attendees. And our ASI Show is held in five major cities — Orlando, New York, Chicago, Las Vegas and Dallas — that are easy to fly in and out of. We’ve made them cost-effective and convenient because our attendees don’t want to spend a lot of time out of the office.
We’ve also been successful with turnout incentives. For example, we’ll offer some attendees $50 gas vouchers or free hotel rooms. When I first joined ASI and compared what I spent on direct mail at my previous job to what ASI spent on free hotel rooms, I found it was the same price. I think more people enjoy getting a free hotel rather than more direct mail.
EXPO: What’s the most important lesson you’ve learned about your strategy?
Behringer: Really understanding the business you’re acquiring. That includes everything from the macro level — what are the market dynamics, trends and competitive landscape — to the micro level — what are the specific drivers of revenue and expense in this P&L. Not to contradict myself, but you can never take for granted that just because a business generated $5 million in revenue last year, it will generate $5.5 million this year.
Andrews: Be flexible and react to your customers — attendees and exhibitors. Organic growth is beneficial because the promotional products industry has many different business owners, and they all have different needs. Growing organically allows us to discover those needs and create products and services that meet and exceed them, for a fair price and profit.
Goldman: Be transparent with exhibitors, attendees and sponsors. Tell them what you’re doing and why you’re doing it. If the show doesn’t go well, get on the floor and “walk into the fire.” People recognize when you put your heart and soul into something, and are willing to give you a second chance when they know you share their disappointment. And, likewise, when the show goes well, “feel the love.”
Dawn J. Grubb is owner and president of 24/7 Communications in Kansas City, KS.
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