EN guest editor Phil Soar analyses the effects of Informa buying Tarsus on the wider industry and considers the road ahead for our major exhibition groups.
A couple of months ago that I suggested the trade show world was very likely to be back to normal by 2024 and, in many cases, well ahead of there.
I based this to a large degree on the performances of my own companies CloserStill and Nineteen, but in the last two or three weeks we have seen further proof. This is not so much the first shoots of Spring, rather the sudden arrival of a host of daffodils.
Even Colin Morrison seems to be a convert. His Flashes and Flames is often cautious on trade shows. But in March he was bold enough to say that trade shows were back and approvingly quoted (Informa CEO) Stephen Carter’s statement that: “Informa’s revenues in 2024 will be noticeably bigger than pre-pandemic.”
Informa are the largest exhibitions group in the world and Carter’s projections indicated that he hoped to be running at 110%-115% of 2019 revenues in 2024 – though he was sensible enough to note that price rises would play their part.
RX declare results
RX also declared their results in March. Though RX only made up 11% of the wider RELX in 2022, their results were shown independently. EBITDA (effectively net profit) in 2022 rose to £164m, a massive rise from the Covid years but still perhaps some one third below comparable numbers from 2019 (because RX is only part of RELX the real numbers for the exhibition part of RELX’s business are not always available).
RX’s revenues in 2022 were 78% higher than in 2021 – which was very encouraging for their roughly 3,000 staff.
Overall this indicated that the world’s second largest trade show company is likely to be back to where it was by 2024 at the latest. What matters in terms of perception is the journey – the trajectory for all the major groups is now clearly upwards and this is obviously reflected in the value of our companies and the prices which are now being paid.
Informa buying Tarsus – a signpost for the future?
The real news from Informa on 9 March was their acquisition of Tarsus, at that date probably the fourth or fifth largest of all the non-Messen trade show groups. Without repeating too many of the details, there were a lot of surprises in the deal.
Firstly, that there was no bidding process. Goldman Sachs tell me they never spoke to another prospective buyer – highly unusual in any deal of that size. Secondly, a large part of the consideration was not in cash, but in Informa shares. This is very uncommon when a private equity company is selling an asset, though (writing as an keen Informa shareholder myself) it appears a decent gamble. To quote Doug Emslie (the CEO of Tarsus) – though the sale price was quoted at $940 million, the Informa share component was predicated on Informa shares rising from 675p to 850p. And if that happens then the deal will be worth $1.2 billion rather than $940 million (assuming static exchange rates etc).
There is just a hint here that owning Informa shares was preferable to owning Tarsus shares.
Which leads us on to the first question anyone in the financial world asks – what was the Multiple? (The multiple being the price paid divided by the annual profit/EBITDA).
And this is intriguing, because the quoted multiples are in the wide range 9.9X to 16X.
But what was Tarsus valued at – 9.9x or 16x?
Informa’s current PE ratio according to the markets is 98 – which is obviously nonsense and reflects the decline in profit in the Covid years (over the 2010 to pre-Covid years their PE averaged 24). In the Goldman Sachs oficial announcement the acquisition multiple was given as “9.9X on a 2023/2024 average”. It is always to the benefit of the acquiring company to quote a low multiple as it suggests they have done a good deal, but this number is very misleading.
Firstly, it casts forward nearly two years rather than looking at the last 12 months profits (the normal calculation). Secondly, it assumes that Informa will be able to reduce “run-rate synergies” (an interesting synonym which presumably means cost cuts) of $20m by 2025.
In other words, if you reduce Tarsus costs by $20m it will presumably increase their profits by $20m– and this makes the multiple of profits which has been paid for Tarsus seem much lower (in broad brush strokes from 14X to 10X or thereabouts) My apologies if these paragraphs are somewhat technical.
Added to which, many of the assumptions in the announcement are predicated that the Informa share price will rise to 850p – and it may do worse or indeed (hopefully) do better.
Taking all of that into account, I think that Colin Morrison’s broad calculation of Tarsus being sold for 14X profit seems right. And that really does suggest that the world of finance believes that trade shows sure are back.
So what might this mean and what happens now?
One obvious point is that there is very little Informa can now buy to move the needle if Stephen Carter wants them to fundamentally be a trade show group. In 2024 their revenues are projected to exceed the 2019 total of £10.7bn.
Of course they can buy the odd show with a £2m-£3m profit if it fits, but at their size they have to think of big bites – they are a whale, not a halibut. In buying Tarsus they have taken out one of the top five possible targets.
There are very few large independents left. If we exclude the Messen and RX, then the biggest trade show groups, by profitablility, are Clarion, CloserStill, Hyve and EasyFairs with Emerald (NY) being somewhere in the pack after a difficult few years. Arc are too new to be placed.
There are a small number of US based trade association events (usually medical) which might fit somewhere in the list – but these are usually in the category of “too hard to try”. There are a small number of private companies which approach the £10m EBITDA level – examples being William Reed, Nineteen Group – but these are currently in a different league.
So it has been an interesting week for those of us who spend our time in the sunlit uplands of trade show valuations and funding.
Who might sell and who might bid?
The first takeaway, is that trade shows have recovered from the Covid years and multiples are back to where they were. The second is that there are likely to be more major deals in the next 24 months (for example Hyve) as those five remaining larger groups now show significantly increased pre-Covid profitability.
The Informa/Tarsus deal is an oddity – a UK seller and a UK buyer, though no one missed the fact that all of the numbers were quoted in dollars.
But the strong likelihood is that future buyers and investors will be from the USA or even from the Far East. London has rapidly ceased to be a major place or source of investment. If you want proof, in 2001 a full 18% of the total worth of the world’s quoted companies was on the London Stock Exchange. In 2023 that number is just 7% (and 80% of their revenues come from outside the UK). In the past 12 months only 1% of all the companies raising money on all the world’s stock exchanges chose to do so in London. In the last year all the large UK businesses which floated on the markets chose to do so in New York.
What does the UK offer – perhaps slogans on the side of buses?
While the world trade show business is still based here in West London, less than 25% of its revenue is in the UK. The decline in the UK’s significance as a place to invest and do business has been stunning. I hardly need to add that this was dramatically accelerated by Brexit in 2016, when this country decided it didn’t want to be part of the world’s largest trading bloc and didn’t have any idea what to do instead – apart from writing nonsense on the side of buses.
The UK has become a cheap market for those searching for good deals. Sterling remains weak and no one thinks that will change anytime soon – making UK based assets look deeply undervalued in Dollar terms.
So our UK companies are vulnerable to buyers from across the Atlantic – and that is where I think the next set of deals for our four or five remaining gems will come from.
