Collingwood Advisory director Daniel Pitchford supports entrepreneurs on strategy, scale-up, and exit planning. He describes the qualities exhibitions businesses need to secure investment.
2020 was obviously a slow year with regards to M&A. For many corporates and private equity houses, it was more about strengthening cash positions of existing business and portfolio companies, and helping people weather the storm. As we’re seeing by the flurry of acquisitions, there is pent-up demand, and pent-up capital.
What has risen further and further up the list in terms of importance is resilience. Deeper scrutiny into how the business has traded over the last 18 months, and thus for many events-first and exhibition businesses how they were able to weather the storm, pivot and mitigate to retain earnings, and how quickly they are able to get back to pre-covid attendance and revenue levels.
There’s a natural shift towards a multi-channel model, which adds to resilience and ultimately quality of earnings.
What investors are interested in identifying is whether the company has high levels of recurring or reoccurring revenue. Strong client and revenue retention, well executed rebooks, cash conversion and margin contribution continue to be important characteristics. Businesses that are able to demonstrate consistent increases in average order values, high productivity on revenue generated per employee, provide a stronger investment proposition.
Another factor which will determine the attractiveness of an acquisition is market growth and market leadership. How big is the market, what’s the penetration of the business in that market and what’s the white space?
Scale is an important factor. Whilst £3m EBITDA has historically been the minimum, we’re seeing a certain move downstream and consider businesses which are smaller and less mature. That means there’s more competition across the market chasing high quality businesses, with trade and PE now looking at many of the same deals. Which for sellers is very positive, as there’s more scope to find the right partner for their business and vision.
With private equity there is a heightened focus on the strength of the management team, not just the founder or CEO but the team beneath them. Investors are backing the leadership team to grow the business. Platform businesses, will often have a buy-and-build angle to the growth story. And therefore need to demonstrate strong governance, process, and a well-developed operating model. Building relationships with potential partners is also important, many private equity houses will want to get to know a seller two or more years out from making an investment.
Private equity can be a compelling model for founders/owners depending on their appetite for staying with the business over the longer term.
Some people might want to completely exit in one to two years, which would be more akin to a traditional trade sale. In private equity, there can be a compelling share of upside further down the road, likely once your primary investor sells the business.
Sellers need to be honest with themselves, the business and potential partners about what role they want and importantly should, play in that.
This column appeared in the March issue of Exhibition News.