EN guest editor Phil Soar suggests that the scale of the trade show industry could be an appealing opportunity for some of the world’s biggest organisations
The Rhinoceros*? A tidal wave of money.
During an 18-month period over 2018 and 2019, just before Covid-19, there were six large deals brokered the UK – five of which were Private Equity driven – and which aggregated to more than £7bn (declaration: CloserStill was one of these six). Twenty years ago, it would have been beyond anyone’s comprehension that £7bn would be spent in a single 18-month period buying trade show businesses based the UK, the majority of which were not new but had already existed in 2000.
But if buyers want to spend £7bn in a few months, then they will change the face of any industry. And the face of the trade show business is surely changing.
Why Private Equity and other investors like trade shows
The trade show business could almost have been invented for Private Equity. The core attractions are:
(a) Very high margins (the big groups traditionally run at 25-30%)
(b) Great cash conversion – usually 110%+ and the cash comes in up front
(c) No capital expenditure apart from acquisition
(d) The slow annual cycle and rebook creates high forward predictability
(e) The tenancy slot system provides high barriers to entry (“I like a business I can build a moat around,” as Warren Buffet said)
(f) A very unconsolidated industry – plenty of opportunities for acquisitions.
And the crucial point at the end of 2021: the firepower that Private Equity, SPACs, Family Offices, Venture Capital, and Hedge Funds have at their disposal has increased dramatically in the past two years. Governments worldwide have poured trillions of dollars into relief from Covid. That money goes somewhere. It is as if suddenly your family had another £50,000. It doesn’t just disappear into the ether. You put it into pensions, ISAs, house improvements or wine, non-binary person support, and song. But it still exists and eventually much of it – by some complex, osmotic process – arrives in the coffers of PE and other major funds.
And we already seem to be seeing that trade shows can and will recover well from the pandemic – a great vote of confidence.
Taking the 2009-2010 economic crisis as a template, soon afterwards we saw asset prices (houses, art, classic cars etc) rise way beyond inflation or wages, and it is hard to see why the same isn’t happening again. On 2 August the FT’s main story was about the dramatic rise in house prices in the world’s major economies (9.6% on average) in the past 12 months. The US was an astonishing 17%. Who would have predicted that in the depths of the Covid-19 recession only 12 months before? If you are fortunate to have a portfolio of shares, on average it will have increased in value by 35% in the last 12 months.
A wall of money, like a tsunami, can be a powerful driver of prices. And the single biggest driver facing us today is simply that – a Wall of Money.
How will the exhibition landscape look in five years’ time?
It is easy to say: “A bit like now.” But in a recent article, I showed that of the Top 30 events in the UK as recently as 2010, only 11 were still running and owned by the same company in 2020. Two out of three had ceased to exist or been sold to someone else.
There is the perennial “Will Reed ever sell RX?” – read Exhibition News for the last 30 years. There is no obvious indication that this will occur, and it is hard to see how RELX would deal with the almost inevitable negative arbitrage on the price – against that, if cash were needed for a different acquisition, then RX can be easily detached without trailing wires. An asset deal with Informa to create the world’s biggest trade show company is a possibility, but Informa’s shareholders may not be keen to double down on trade shows at this point (having said that, in this environment Informa may see such a deal as a defensive one).
The bigger groups have disposed of many of their events and staff during the crisis and it does not appear that they intend to grow them back post-Covid. It will not be for a time – at least a year – that we will see the full consequences of these decisions as holes begin to appear in the landscape.
I think this trend will continue; a reduction in the number of marginal events in all the bigger companies reflecting, in part, the absence of management to run them. We will see smaller/medium sized companies pick up some of these disposals and they may indeed do very well with them – particularly if they can just move into the holes left by their previous occupiers.
There will not be a flurry of acquisitions until perhaps mid 2022 or even later. The perception that there would be distressed cash-shortage sales by now has simply not come to pass.
Taking a five-year view, of all the scenarios the one I would bet on is that the number of big players will decline sharply. Depending on whether RX (Reed) goes to PE, I can see there being no more than two or three large PE consolidators. I had previously assumed that Informa stays broadly as it is – but maybe that is too conservative. Any business can be a PE target these days (ask Morrisons or Meggitt for whom a stock valuation of £7bn is no protection). Informa, with a market cap now of less than £8bn (40% below its peak), is certainly not too big to be targeted, and it is the shareholders (not the board) who will decide.
There are already three large North American PE groups in the mix (Blackstone, Onex, Providence) with Carlyle, CVC, Advent, BC, Bain, Texas and others regularly showing an interest – but these are not necessarily the ultimate consolidators. Over a medium-term period, I think it likely that the mid-size players (Tarsus, Hyve, Clarion, EasyFairs, Comexposium and Emerald) will be absorbed into two or three PE funded mega-groups (full disclosure – I own shares in Informa and Hyve).
Will trade shows consolidate like newspapers, films, television and digital?
This has been the clear pattern of newspapers, of film studios, of television assets, of magazines, of radio and of digital start-ups (Instagram, WhatsApp, YouTube etc.) in recent decades. A small number of very large players have gradually absorbed the middle-ranking assets – in large part to stop someone else getting them.
So, Disney, Comcast and AT&T have come to dominate media/screen assets worldwide (each of these three is now more than 12 times as big as the once mighty Viacom, owner of the original jewel in the crown, CBS). All three have been buying basically to try to live with Netflix. Netflix didn’t even exist in 1997 but is now the largest media group (by share value) in the world.
We have seen the same with the web giants. Alphabet owns Google and YouTube, Facebook owns WhatsApp and Instagram, Microsoft owns Xbox and Office. As soon as a good-looking product emerges elsewhere, it is easier and cheaper for these behemoths to buy it (typically for billions) rather than risk it is growing into a competitor or, worse, being bought by one of the others.
In magazines in the UK, Bauer, Future and Burda/Immediate already control north of 40% of magazine circulation and seem certain to go higher, and 80% of our newspapers are now owned by just three companies.
We have seen exhibition assets quietly consolidating since Reed and Blenheim went head-to-head in the first part of the 1990s. Informa is an aggregation of many smaller alphabet-soup entities (notably IIR and UBM) and is worth some £8bn. Clarion and the NEC are both valued more than US$1bn, and the likes of Tarsus, Hyve and Comexposium (when out of administration) are not that far behind. Emerald is currently some US$350m, though it was over $1bn at one point. RX could probably sell for £4bn in an auction.
These numbers would have seemed absurd just 20 years ago and may look to us dinosaurs from the year 2000 to be enormous. But so would the capitalisation of the world’s leading companies and PE houses.
Microsoft could buy the world’s trade show companies for less than 1% of its current value
As of September 2021, Microsoft was worth (i.e. the value of all its shares plus cash in the bank) a total of US$2.15 trillion (a trillion being 1,000 billions). Alphabet/Google was worth US$1.8 trillion. Amazon US$1.7 trillion. Blackstone, owner of Clarion and the NEC, had nearly US$700bn of assets under management.
If you think these numbers enormous, consider the remarkable fact that Apple have borrowed US$22bn (repeat, billion) from banks this year – not to invest in anything, but just to buy back their own shares (and thus increase the value of the remaining shares).
Unlikely it may be, but it is worth asking what it would cost Microsoft to buy all of the eight exhibition assets I have mentioned above (Informa, RX, Clarion, NEC, Hyve, Emerald, Tarsus, Comexposium).
The answer – less than 1% of Microsoft’s current worth. Barely loose change. Not even one hundredth of Microsoft’s assets. Peanuts.
If any of the big three tech companies decided to make those acquisitions and take control of the majority of the whole world’s non-Messe trade show operators, then my guess is that it would warrant no more than three or four paragraphs in the Wall Street Journal – so inconsequential would it be to the total value of their businesses.
My argument is that the changing pattern of ownership of so many broadly comparable sectors in the past 20 years has been very transparent – consolidation into a very few major players. Confronted by the Tsunami of money out there, I am hard pressed to work out why the trade show business will be different.
*Conrad’s original reference was to a rhinoceros, not an elephant