Kathleen Thomas Managing Director, Berkery, Noyes & Co. LLC

Kathleen Thomas joined Berkery, Noyes & Co. LLC in 2003 from Veronis Suhler Stevenson, where she served for nine years specializing in mergers and acquisitions advisory in the business-to-business communications segment, with expertise in magazines, newsletters, trade shows, conferences, seminars and the outsourced services that support these businesses. She has been instrumental in the successful completion of more than 50 transactions, including the Forstmann Little investment in ENK International, the sales of McGraw-Hill's Healthcare Information Group, Boucher Communications to Wolters Kluwer Health, National Roofing Contractors annual trade show, MedQuest Communications, Expoexchange trade show services, Asset Alternatives publications & conferences, Mealey's Publications & Conferences, among many others. In addition to her sell-side representation, Kathleen has very deep buy-side experience, advising Hanley-Wood in the acquisitions of Surfaces, NSPI, and Remodelers trade shows, Journal of Light Construction, Pool & Spa, Aquatics, Multifamily Executive and Public Works magazines, among many other buy-side assignments.

From Rob in White Plains, NY on 10/9/2008

Q. We’ve decided to sell our show. Should we consider scaling back our marketing efforts?

A. Answered on 10/9/2008.

Typically a buyer can ascertain whether or not marketing has been cut inappropriately in the due diligence process. This could impact valuation if the buyer believes that the cuts will negatively impact revenue growth when he takes over the event. You don’t want to give buyers the impression that you’ve “dressed up the business for sale.” However, it does make sense to look at your cost structure and make sure you’re operating as efficiently as possible to maximize profits.

From Bill in Las Vegas, NV on 5/27/2008

Q. We’re planning to acquire a company that will strengthen our offerings, but also has a business culture that’s different from our own. How can we help integrate this new business culture to form one cohesive team?

A. Answered on 5/27/2008.

After the courtship comes the organizational marriage. Cultural integration is one of the key factors that can determine the success of a merger or acquisition. Working to integrate different cultures and workforces involves more than organizational entities — it includes employees, systems, customers, and many other stakeholders.

This starts with an early understanding of cultural differences and processes. Each company should be coached to examine how the practices of the other company could be beneficial to the new entity. Conducting cultural due diligence early and determining and understanding cultural compatibility and potential non-compatibilities with the target firm is highly important. This, in conjunction with establishing an integration team comprised of employees from both the acquiring and target companies, will also ensure success.

Most importantly, any M&A activity should be presented to employees as good for the organization and for themselves rather than as a time of uncertainty and turmoil. Focusing on the human dimension of M&A will significantly impact the success of a transaction.

From Andy in Philadelphia, PA on 8/2/2007

Q. What is due diligence? What exactly will the potential buyer be reviewing? Who does it and how much does it cost?

A. Answered on 8/2/2007.

Due diligence is an investigation or audit of a potential investment or acquisition, and it serves to confirm all material facts with regards to the sale. Due diligence includes an operational, financial and legal audit, and it refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

Due diligence often includes:
- A review of business operations, which ranges from reviewing marketing and advertising strategies to analyzing IT systems, vendor contracts and other key contracts;
- A financial review, which includes an examination of the company’s books and records, as well as accounting and bookkeeping methods;
- A review of employees, including their skills, experience, and compensation; and
- It may include customer reference checks.

Your investment banker can help you prepare and compile the materials to be used for due diligence as part of their advisory services. There's no hard and fast rules on timeframes for due diligence; however, the more prepared a seller is to answer a buyer’s questions, the faster and more efficient the process. The costs associated with due diligence are customarily borne by the buyer; however, the seller also incurs some costs in assembling and providing access to the diligence materials, such as online viewing of materials or providing print copies of materials.

From Amanda in Baltimore, MD on 3/28/2007

Q. We don't want to sell our entire company, but we would like to find some investors to fund an expansion. How would you recommend finding investors? Is this something investment bankers can help with?

A. Answered on 3/28/2007.

The trade show industry is attractive to many different types of investors, for many different reasons. Broadly speaking, there are two types of investors: strategic and financial. While both are motivated by financial gain, the strategic investor is typically a company that’s already active in the industry and is looking to invest in growth, either horizontally or vertically.

Strategic investors have management in place and can help you capture economies of scale by eliminating redundancies in the organization. They typically operate on a longer investment horizon and can often assign higher values to a business, but you may have to surrender more day-to-day control.

Financial investors tend to rely on existing management to grow the business, leaving more operational control with existing management but could be more impatient to see a return, as they have finite exit horizons.

Lately, we’ve seen financial-strategic hybrids that blend characteristics of both. It’s important to consider the various forms of investment available, from leveraged recapitalizations, including mezzanine financing, to convertible debt to minority or majority equity investments. An investment banker with experience in the trade show industry can help you model the various alternatives and introduce you to the types of investors most suited to your goals.

From Bob in Chicago, IL on 12/7/2006

Q. Good Afternoon Ms. Thomas; I am currently working with a financial investor to launch a new company within the exposition industry. We are focusing on the B to B and B to C show concepts. We are in the process of evaluating the pros and cons of Buy vs. Build – Acquisitions vs. Organic Growth. In your opinion which strategy would you recommend? Buy vs. Build and what are some of the pros and cons? Thank you for your time and consideration. Bob

A. Answered on 12/15/2006.

There’s no objective solution to the buy vs. build conundrum. Sooner or later, every company in pursuit of growth must solve this puzzle based on its own unique circumstances. Chief among those circumstances is time: How long would it take to build the business from scratch, and would the window of opportunity remain open long enough to get the operation (or product or service) up and running? There’s a significant time-to-market advantage in acquiring a going concern, provided there's a suitable asset available and integration issues are manageable. If there’s a business you can acquire, ask yourself: Does its performance, competitive positioning, quality of staff, brand strength and other attributes justify the price you’ll have to pay to persuade the owner to sell? Shaving months and years of development time might justify a higher valuation, as would the lower perceived risk in purchasing a business with a proven track record vs. the uncertainty of a start-up. Most larger companies decide in favor of buying vs. building, which tends to move the needle further and faster for them. While entrepreneurs tend to be builders rather than buyers, providing the businesses to fulfill others' buy strategy.

From Larry in Vero Beach, AL on 12/5/2006

Q. What do you see for the future of the Baby Boomers Expo Market? I own Boomers Seniors Expos as well as Baby Boomers Expos. Sell or expand?

A. Answered on 12/6/2006.

The 77 million baby boomers born between 1946 and 1964 are the single largest demographic group in U.S. history, and one of them turns 60 every seven seconds. There’s no question that aging baby boomers are a tremendous market in verticals -- ranging from healthcare and financial services to travel, real estate, recreation, and on and on. To maximize the value of your business, consider selling it before you have realized all the growth you anticipate. Buyers value a business based upon their belief in its future potential. While past performance provides evidence of the strength of the market, the business model and the management team, the selling price will be based upon what the buyer thinks the business will generate going forward. The leading business in a mature market may well be valued lower (based on a multiple of earnings) than the second- or third-ranked player in a market that’s growing at a double-digit rate. Timing the market is always a tricky business -- you don't want to sell too early and risk leaving money on the table, but waiting too long can be even riskier. The more upside potential buyers perceive, the more they will pay for your business.

From Mike in Boston, MA on 8/23/2006

Q. I want to retire in two years and sell my business. What should I be doing to get ready? When should I approach an investment banker about working with me on the transaction?

A. Answered on 8/28/2006.

It’s very wise to begin preparations for your exit well in advance of actually going to market. There are several key steps you can take to prepare your company. One is to make sure you have a solid “bench” in place at the time of exit so that the business can continue to grow and function as you transition out of it shortly after a sale. Putting in place strong management who can learn the business and markets and earn the trust of a new buyer will be important for most buyers -- and absolutely critical for financial buyers.

Another important step you should begin to implement is detailed reporting on the key metrics and drivers of your business. Tracking trending over a period of years for detailed attendee and exhibitor statistics is a critical due diligence element for a buyer. The more information you collect and track year to year, the easier it will be to demonstrate the value of your business -- not to mention help you manage it in the near term. For example, forward bookings are a key indicator of future growth and many trade show producers don’t capture this information at a point in time compared to the same point in time prior year. This is a very important performance barometer.

Lastly, having your numbers audited, or at least reviewed, can help make the due diligence process easier and help in negotiating key contract terms (like size of escrow) because a buyer has a greater degree of confidence in the accuracy of audited financials. Beginning a relationship with an investment banker early on can help you identify these types of processes and answer your questions as you move ahead.

From Kelly in Chicago , IL on 7/6/2006

Q. Should we tell all of our employees that the company is up for sale? Do you have any recommendations on how to tell them? How do we allay their fears so they can concentrate on their day-to-day jobs?

A. Answered on 7/10/2006.

Confidentiality is a concern in every transaction. News that a company is for sale can impact customer relationships, competitive position and employee morale. As a general rule, we advise clients to make information available on a strictly need-to-know basis -- that is, to individuals who may be directly involved in the transaction process. If confidentiality is less of an issue, share information with staff in a way that leaves them feeling positive about the process and hopeful about their future opportunities. A message such as: "Selling at this time will let us take the company to a level beyond what we can achieve as a stand-alone, creating new opportunities for everyone within a larger organization."

If a private equity group is the buyer, you can truthfully say that putting deep pockets behind the company will enable it to grow faster, organically and through acquisition, opening new career opportunities to employees. A sale to a strategic buyer offers not only deeper pockets for growth and competitive strength, but also employees will be able to leverage a broader product array within a wider organization, with new ways to grow.

In either case, you'll want to shorten the period of uncertainty by waiting as long as possible to tell employees. A good time to tell employees about the sale is when the Offering Memorandum is circulated to potential buyers, and it becomes more difficult to maintain strict confidentiality. It's safe to assume that, once your employees are aware of the sale, the marketplace will be, too, so it's best that your customers and competitors hear the news from directly from you. The added benefit of a public announcement is that you may reach potential buyers who were not on the initial list while it's still early enough in the transaction process for them to join in. Timing aside, it's critical that the information reach all stakeholders directly from you, unfiltered by the rumor mill or media spin.

From Julie in New York, NM on 6/12/2006

Q. I run a trade association with the major trade show in our market. As the macro industry shows encroach on our niche, my board of directors is considering selling our trade show to a for-profit. How would this impact our primary mission of providing service to our membership?

A. Answered on 6/12/2006.

Trade shows are often an association’s most significant income source. You can maintain that income by structuring a transaction that replaces most of the cash flow. Because the association’s continued involvement with the event is so critical to a buyer, there’s typically a revenue-sharing component to the deal, often 3-5 percent of exhibition revenues. The balance can be contributed by interest earned on the cash paid at closing for the trade show. In most cases, the association can eliminate operating expenses and overhead related to overseeing the show staff and production. Between the revenue sharing, interest income and expense elimination, the association can often replace the show’s cash flow, mitigate future risk by monetizing the value built up in the event, and free up resources that can be applied to the other services you provide your membership.

Ensuring that the show continues to serve your membership is critically important, which is why it’s so important to find the right buyer. The buyer of an association show must be committed to that marketplace and committed to the association's role going forward. Worries that a for-profit operator will raise prices and cut quality are usually misplaced; smart buyers won’t do anything to alienate the customers of an event for which they just paid a handsome price. They will seek to grow the business by making customers happy and loyal, expanding the customer set and making the event the most important live marketplace for the industry it’s serving.

From Daniel in Seattle, WA on 6/12/2006

Q. I’m a trade show producer, and I’m contemplating a strategy of buying a magazine to compliment two of my shows. Does this improve the value of my company or reduce it? I've always heard that magazines have lower multiples than trade shows.

A. Answered on 6/12/2006.

Excellent question. And tough. It’s mostly about execution. Yes, trade shows typically sell for higher multiples, assuming they’re serving a similar industry. However, it's not always so black and white. Trade shows and trade publications can often work together so well that 1 + 1 can equal 3 -- or more. If you buy a publication to complement your trade show then run them separately and don’t take advantage of any synergies between them, you’ve probably not created much more value than what your company was worth plus what you paid for the publication. However, if in acquiring this publication you’re able to take advantage of a much more economical marketing vehicle to attract both exhibitors and attendees, have your sales staff leverage the exhibitor relationships on the show side into the magazine and the magazine's advertisers into the show, able to establish a year-round relationship with your market in addition to the annual must-attend marketplace, and able to leverage your content, the authority and credibility of your editorial staff into the content of your event, you’ll have created significant value far beyond the individual values of your company and the acquisition you’ve made.

From Chad in Phoenix, AZ on 6/12/2006

Q. Following up on the question of the association that wants to sell its trade show, when you answered that it’s critical to find the right strategic buyer, does that mean the seller fishing in a smaller pond? Excluding private equity and others? Won’t that impact value? Does that mean association shows sell for a lower price than for-profits?

A. Answered on 6/12/2006.

You’re right to assume the laws of supply and demand here. One of the biggest drivers of value is simply the number of buyers that will vie for a property. And, in today's trade show M&A market, with so much of the activity driven by private equity, yours is a very good question. Since association shows virtually always need to sell to a strategic buyer who knows the served market and has the infrastructure to produce the event, that could be considered a disadvantage in an M&A market dominated by private equity. However, in most industries, there are multiple strategic buyers who are able to stretch farther on valuation because of the significant value they can add to an association show. Often within the first year of ownership, they’re able to employ best practices, eliminate or revise certain practices that the association typically cannot change for political reasons and leverage marketing with their other related assets, as well as venue and vendor relationships. Therefore, a strategic buyer can pay substantially more for an association asset, which often makes up for the potentially less competitive playing field.