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April 4, 2008

THE RISE OF M&A: Why is the events industry becoming a hotbed for investment?

If you’re looking for a business sector to invest in, perhaps the events industry is the place to go. The recent acquisition of exhibition organiser Ithaca by media group CMP and Ingenious Media’s cash injection into Brand Events earlier in the year are just two examples of a number of mergers, buyouts and investments that have taken place over the last 18 months. What’s more, Patrick McKenna, founder and chief executive of Ingenious Media, predicted that “live events is likely to become the focus of investment in media”, at the Association of Exhibition Organisers (AEO) Conference in September.

“Merger and acquisition [M&A] activity has been buoyant and increasing over the last couple of years and there are many events run by small and medium-sized organisers that are growing rapidly,” says Steve Monnington, managing director at Mayfield Media Strategies, who has been directly involved in selling events businesses in the past. “The Ithaca portfolio is a case in point. All of their events are on a fast growth curve at the moment, both in terms of exhibitor revenues and visitor numbers.

“There is a very well defined M&A structure in the UK. The very large companies usually get acquired by private equity groups, but the majority of deals are smaller organisers (often having left the larger groups to set up their own businesses) selling to the medium-sized and larger organisers.

“Organisations such as CMP have been acquisitive for growing, synergistic product for a long time. The larger companies are launching far fewer shows, relative to their size, than the smaller organisers, and, therefore, to meet their growth targets the big guys have to acquire.”

The search for media innovation
However, Monnington views Ingenious as a different proposition. “They have invested in Brand Events for their innovation in heavily formatted consumer experiences,” he says, “The experiential events market is considered by many to be the ‘next big thing’.”

With such a lot of investment interest about, are remarks that the exhibition industry is in dire straits wide of the mark?

“A lot of the comments about falling audiences were directed at the larger events, which are already owned by the major organisers such as Reed, EMAP etc. But in any case, I don’t think there is any correlation between this and M&A activity.” says Monnington.

“I believe that the future always was bright. The statistics from the very large events will inevitably skew the averages and give a misleading view of the overall sector. There are a large number of growing events in the UK. All of our clients (who tend to be smaller and medium-sized organisers) are seeing very good growth in their businesses. There is a subset of very creative entrepreneurial individuals and companies in the event business.

“What is clear is that business-to-business exhibition launches can be self-funding – companies such as IMP have proved that with Business Continuity – and that small organisers can make a lot of money by launching a show and selling it after two or three editions.”

Big versus small
However, for Karen Taylor, the former managing director of Reed Exhibitions and now project director at Tarsus – which runs events and a number of events-related online directories – there’s a clear distinction between old-school exhibitions and their new smaller cousins.

“Ingenius is looking at ‘different ways’ of making money for their investors and live events are the flavour of the month,” she says. “They also invest in art and movies, so I do not think we are actually the focus of their attention. I think what they catagorise as a live event is not an exhibition and you will see this is a mis-match in reality. Ingenious has invested in Brand Events, which I believe does not run exhibitions. Their Taste events, for example, are festivals.”

Taylor insists that the exhibition industry has not really changed. “It is in decline,” she says. “The live events industry might be growing, but it does not represent what the AEO or its members do for a living. It is a marketing agency activity. If you want to know if there is real growth occurring, look at the occupancy rates in the venues such as Earl’s Court, the O2, ExCeL London and the NEC – they are desperate for more business. The new shows that have emerged are small and in no way compensate for the massive decline in the trade shows that they have suffered. You only have to take the Reed portfolio at the NEC over the last 10 years to see the true scale of it.”

A case for consolidation

But if M&A activity is restricted to successful smaller events being snapped up by large events companies, how does that explain the rumours of an Emap takeover that are currently buzzing around the industry? Taylor puts this down to consolidation, which she says will continue in the short term.

“There will be plenty of movement in the exhibitions industry (particularly the trade show organisers and publishers) as further consolidation takes place,” she says, namechecking both Emap and Reed Exhibitions as potential targets.

Monnington also believes M&A activity will increase. “I certainly don’t think it will decrease,” he says. “Emap is almost certainly going to be sold and it seems that there will be a formal process for Clarion starting shortly. The Reed defence shows are still in play. At the lower end, we are still seeing the same level of deal flow.”

Of course, as Monnington points out, consolidation can’t go on forever. “There is a decreasing number of medium-sized organising companies that remain independent, so inevitably there will be fewer acquisitions,” he says. “But this has nothing to do with credit squeezes – it’s simply supply and demand.”

Follow the investors
In the short to medium-term, however, there is money to be made by buying nurturing and selling on the smaller, more creative successful shows.

“Private equity players see the money to be made by acquiring, building by acquisition and selling,” says Monnington. “Individual products can be acquired on relatively low multiples and the much higher exit multiples for a whole business means that the uplift in value can be enormous.”

So although the more traditional players are feeling the heat and being forced to consolidate, there appears to be growing demand for the more focused, niche event, which is based more around an idea and delivers a more creative engaging experience, than one driven by the need to sell stand space alone. Investors certainly think so, and they are invariable right.

For more key insight into investment in the events industry, look out for EVENTS:review's video interview with Ingenious Media's Patrick McKenna tomorrow and Steve Monnington's Opinion article on Friday…

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