The past couple years have been tough on event mergers and acquisitions. The recession forced most into a fall-back position and spending was kept to a minimum. With the prospects looking slightly better for a recovery for the show industry, EXPO spoke with Nick Curci, president of Corporate Solutions, an event M&A brokerage and advisory firm, about the deal landscape and if the process of evaluating properties has changed as a result of the recession.

Q: Has the process for performing due diligence changed, particularly coming out of the recession?

Curci: The short answer is no, as far as due diligence is concerned. However, buyers are a lot more careful in the due diligence process itself in addition to deciding whether to buy something or not. But the process really doesn’t change, it’s fairly standardized and each buying company has their own methodology, but they’re all very similar and look at the same things.

The treatment of the due diligence team does differ within each buying company based on whether they look at historical information or going forward information. And you’d be very surprised at how differently people treat these things.

Q: Does it matter if it’s a strategic buyer or financial buyer?

Curci: No, it doesn’t matter, but the philosophy can be very different. Typically, what’s different about it is that for the larger deals people send out an army of accountants to do due diligence and they’re almost exclusively focusing on historical numbers.

For the more strategic or smaller deals it’s almost the reverse. They really focus on the future expected performance of individual events as that is most important to them going forward.

It is a different dynamic on who the acquiring company is and how they handle the due diligence process.

Q: Why is that?

Curci: When it’s a larger company that has a large portfolio of events the presumption is it knows how to run events, it knows how to make them bigger and better going forward, and with a bigger infrastructure or more resources it can theoretically do it better than a smaller company, and it needs to ensure the results that were reported are accurate. That’s the primary goal—accuracy of what was reported. It’s not to say the company won’t spend any time on future performance, certainly it will, but it’s mostly how accurate are the year-to-date numbers for the next show cycle.

Q: How far back and how far forward should buyers be looking?

Curci: The rule of thumb is three years back. The larger the deal the further back they go, but it also depends on when the transaction happens. For example, has there been a significant change of events in the industry or in the world in the last two years or five years? The answer for us currently is yes, so you may want to go back more than three years because if you go back just three years today on a pending acquisition the trends may not be indicative of future results or expectations. Today, you’d want to go back further, maybe five years, to get a true sense of where things once were when they were at the top versus just focusing on the last three years when they were at the bottom.

Q: What are some of the other key steps in the due diligence process?

Curci: Look at the background of the company, its legal name, where it’s incorporated, who the owners are. Also look at their organizational chart—the number of employees, what their compensation plans are.

The processes are similar in nature, but when you get into the details they’re very different. You’ll never see two due diligence request lists, which is what buyers present to sellers, that are identical. They’re all completely different.

As an example, if we talk about human resources and staff, some people will go over it in a very top-sided approach—what are the positions, how much are they paid? Other people will get into more detailed aspects of those things—what are their names, what is their background, what’s their experience, how long have they worked there? You go can go into very deep levels for any of these items.

Q: What’s next to look at?

Curci: Check to see if there is any pending or threatening litigation as a plaintiff or defendant. That’s a big one.

Also review all material contracts related to everything about the event—whether it’s the decorator, venue, everything down the line that adds significance to the results of the show. When you buy an event, the presumption is you buy the fulfillment and obligations of those contracts. For example, if a show is held at a convention center where the event is booked for the next two years, the buyer wants to see how solid that is and what those terms are and whether the buyer can get a better rate. Depending on who the buyer is, they may want a shorter term in that facility or a longer term, based on what their buying power is.

Q: What about customer lists?

Curci: No matter what size you are, that’s probably top on the list. Make sure the database and the customer lists are real and that they have complete information—email, fax, phone numbers, the right contact person—so when you market to these lists like you do in your everyday business you want to make sure what you’re buying is real.

A lot of companies will actually test the list. They’ll do an email blast against it—not the buyer, but under the direction of the buyer the seller will send out an email blast to their prospect list and then the buyer can look at the return rate on the email addresses. This is very important in the due diligence process because for events, lists are gold, they mean everything.

Q: Describe what, exactly, a show’s assets are.

Curci: When you buy a show, what you’re physically buying are the lists, the database, future contracts and facility dates and trademarks. And that’s all you’re really buying physically. The people come with it, but the physical assets part, that’s it. What impacts the sale price?

Curci: It’s about 98 percent EBITDA (earnings before interest, taxes, depreciation and amortization) driven. Multiples now are between 4x and 6x, on average. That said, a larger property that has great margins and a great track record and trends for the last three years could go for 8x, but if someone asked me what the market multiples are today I would say between 4 and 6.

Q: What are the attractive targets these days?

Curci: Buyers are looking for ways to extend their brands and make them stronger, by buying competitive events. If you’re a buyer that’s number one in the market, if you can pick up the number two or even number three event, it’s a great thing to do. It’s low risk, you know the market. And if you’re number one and you’re buying number three, well guess what? Number two is a lot more distant than they were before the acquisition. Conversely, if you’re number two and you can buy number three, you’re going to give number one a real big run for their money.

That’s what most of the acquisitions today look like and will be for the foreseeable future.

The way it has been for the last several years and the way I presume it will be for the next one year, if not two, will be media companies looking to expand their brands within the trade show element of their business. That can either be a large group like Nielsen who has publications and trade shows and might want to increase their market penetration, whether they have an event in an industry or not and they have a magazine that would support that. That’s the most common way today—people who are already in the trade show business buying up smaller trade shows that are related to their current market or in the exact same market.

Today, people are looking to minimize their risk with acquisitions. They don’t want to over pay and they don’t want to take a high risk in an industry they’re not familiar with.

Q: What kinds of deals will be getting done this year?

Curci: They’re definitely going to be smaller deals like they have been for the last three years, with very few exceptions. The smaller deals are the easier ones to get. A larger organization doesn’t have to get financing, they can pay an acquisition price with their current cash flow. Or a little bit of a larger show with their existing lines of credit. But the larger deals are much tougher because the financing is almost impossible to get, whether you’re private equity or whether you’re a large media company, if you have to finance an acquisition that’s a very difficult thing to do now.

Q: How many deals were done in 2010?

Curci: For pure trade shows domestically, there were only eight. In my estimation the trade show M&A market in 2010 hit bottom. I think it will pick up modestly this year. There are a large number of buyers looking for a really strategic acquisition. The buyers are coming back to the marketplace and the sellers are starting to knock on the door as well, knowing their best years of the early 2000s aren’t going to be back for a long time.