Media Fortune Fame & Folly

Is UBM’s strategy the real deal or not?

UBM was founded almost 100 years ago as United Newspapers. The company was created by then UK Prime Minister David Lloyd George in order to acquire the long-gone Daily Chronicle, which had been critical of his government. It seems an appropriately offbeat opening for the

company which successively became United News & Media and United Business Media, and has seldom been out of the news. Across the last 15 years, UBM has been a major player in almost every area of UK media and marketing: TV, consumer magazines, business publishing, exhibitions, national newspapers, regional newspapers, market research, classified papers, data businesses and PR. And it’s even been in financial services. It’s struck huge deals, buying and selling businesses as its strategy has jumped around.

It was once one of the UK’s largest newspaper publishers, led consolidation of the country’s commercial TV channels, and pioneered controlled circulation B2B magazines and pre-internet classified-only papers. Sometimes it exited ahead of the curve (as in TV, market research and regional newspapers), sometimes it was behind (as in national daily newspapers, classifieds, and B2B magazines). The switchback strategies are highlighted by the fact that 2014 revenues were two-thirds below what they had been 15 years before.

Champion changer

Even before digital disruption took hold, UBM was a world champion at chopping and changing markets, portfolios, and executives. On the whole, investors have supported the company even when it has paid too much for businesses – because it has been good at re-selling them. It has certainly had enough practice.

After a decade of (almost) concentrating on B2B media, the company has blown hot and cold on “content” and has been selling-off even some of its stronger information assets in piecemeal fashion. It has looked a pretty random process, not least because it left the company with some magazine-centric businesses it probably doesn’t want and can’t do much with. Conversely, it has sold – for knock-down prices – some durable B2B franchises.

But UBM has learned how to ‘spin’ any outcome. It has branded its rump of magazines, directories and web sites as OMS (“Other Marketing Services”). These disparate activities are now described as “alignment with events” in the 2014 annual report which claims: “We offer a range of high quality, sector-specific digital and print products (such as community websites, digital directories and print publications). These enable our clients to reach their target audiences or enhance their professional knowledge and can improve both attendee and exhibitor experiences at our events.” It’s as if the worldwide pharma exhibitions somehow gain strength from publishing the tiny UK retail trade magazine Chemist & Druggist – until they sell it. And, of course, the company has already sold some businesses in the heart of sectors where it now has exhibitions. They’re making it up as they go along.

UBM’s long tail of marginal and loss-making events is an obvious problem. In 2014, its top 89 annual events generated 85% of events revenues and 96% of profit, which is another way of saying that the remaining 200+ events were not worth much. And it’s been getting worse: in 2013, that same 96% of EBITA had come from 100 events.

You couldn’t make it up. For many UBM executives, the 180-degree strategy-making has long been like Musical Chairs, a British party game where children race for the limited number of seats whenever the music stops – and the loser ends up on the floor.

New boss, new plan

New CEO Tim Cobbold says the music has stopped. He is staking the 97-year-old public company’s future on becoming the world’s leading B2B events group. Currently, it is second to Reed Elsevier and says: “The events market is a large, attractive global market which is forecast to grow at around 5% per annum. UBM is a leading operator in a highly fragmented market, strongly positioned for growth, given its geographic weighting towards emerging markets and its diversification across attractive industry verticals.”

Like his predecessors, Cobbold glides past the little question of why his “Events First” strategy somehow still accommodates PR Newswire. The simple answer is that this US-based distributor of press releases (which has been visibly non-core for a decade) last year accounted for 26% (£196m) of UBM revenue and is solidly profitable, albeit ex-growth. Like a previous generation of UBM executives who once held on too long to a profitable money broking business, it may signal that there is a limit to how strategic the company can afford to get. But they are putting on a good show.

With almost theatrical timing, the new-to-media CEO last year splashed out $972m (equivalent to 40% of UBM’s then market value) to acquire US events organiser Advanstar, whose portfolio includes 54 exhibitions, 100 conferences and 30 publications.

It was a breathless five months after joining UBM from banknote printer De La Rue, and Cobbold was in full flight: “The Advanstar acquisition fits neatly with, and accelerates, our new ‘Events First’ strategy. The strategic logic for the deal is clear: it increases our focus on events, positions us as a leader in a new vertical market (fashion), creates the leading events business in the US, enhances our bias towards large events (which tend to have higher margins) and balances our emerging markets exposure, bringing us more in line with the global events industry. Additionally, given the price paid of $972m, coupled with operating synergies and a tax efficient structure, it is financially attractive for shareholders.” Phew.

Quick deal

He was quick to say that the deal was only “finalised once the ‘Events First’ strategy had been developed”. It really seemed like a new boss in a hurry to make his mark. And, perhaps also, yet another Brit keen to make it big in America.

Cobbold may not even have had time to catch up on the messy history of Advanstar. He might have read this report from the PE Hub news service in October 2009: “Private equity has been like a drug dealer Advanstar just can’t shake. For the past 20 years, the company’s entanglements with buyout firms have created a rollercoaster of near-disasters, yet the company keeps going back for more.” That was the month when Advanstar – for the third time in a decade – staved off bankruptcy by cancelling $385m in debt after a 27% crash in revenues, amid warnings that 2010 was going to be no better. So there is the recommendation: it’s a company with a history of being bought and sold and (mostly) disappointing the buyers, including a whole rack of private equity firms.

But UBM knows best. The deal would almost double its 1% share of the fragmented US events market, which would now account for more than 40% of its global events revenue. UBM’s major franchises include the world-beating Game Developers Conference and CPhI, the leading pharmaceutical ingredients events. It claimed to have overtaken Reed Elsevier and Emerald Expositions (ex Nielsen) in the US. But sceptics could not resist pointing out that a slice of the Emerald portfolio had actually been divested by UBM in an earlier reshuffle.

‘Counter-balancing China’

The deal PR was full of Advanstar’s successful Magic fashion exhibitions which include two of the largest independently-owned US trade shows, attracting over 8,000 annual exhibitors, 60,000 retailers and covering 190k sq m of exhibition space. UBM had previously promoted its commitment to the high growth potential of emerging markets including China, which accounted for 46% of events revenue in 2013. Now, it “sold” its big acquisition to investors as a way to “enhance the geographic mix” through “increased exposure to the more stable yet still growing US market”.

Some shareholders weren’t convinced. One analyst described it as “a big and brave strategic move” and added: “Key questions now relate to the quality and growth potential of the asset acquired, given what looks a high price paid.”

There were certainly some aspects of the “big and brave” deal that were not well explained to shareholders. For a start, at least 11 of the 54 Advanstar exhibitions are not very UBM at all: the 35-year-old Progressive International Motorcycle Shows are 11-city touring events whose menu of bikes, stunt riding and ‘glamorous’ women attracts more than 400,000 consumers.

UBM shareholder communications artfully combined the financials for these consumer shows with those for magazine-led activity in the B2B automotive sector. But, even together, the so-called “Power Sports-Auto” sectors were making operating profit margins of scarcely 10% on revenues of $24.6m which had not grown for the previous three years.

Allocating the Advanstar corporate and operating costs to each sector pro rata to revenue, provides the following illumination:

  • Much of the business has been low or no growth throughout 2011-13. Total revenue grew by just 1% in 2011-12. Although the growth rate became a more than respectable 30% in 2012-13, 100% of it came from the fashion exhibitions. These shows accounted for some 53% of the total revenue in 2013 and have themselves grown by 100% in the past three years.
  • The similarly attractive licensing shows, whose operating profit can be estimated as $3.3m (20% margin), has been achieving annual revenue growth of some 9%.
  • By contrast, the pharma and medical sectors’ revenue declined by 14% and 12% respectively across 2011-13, with the power sports/auto revenues being static. So, some $122.2m or 41% of Advanstar’s 2013 revenue came from no-growth sectors.

Advanstar is not, of course, the only company to be offered for sale complete with businesses that any long-term owner would close or sell. But too much of this portfolio looks like a poorer version of the UK-based group before its acquisitions and disposals of recent years.

It seems to include many of the types of B2B magazines that UBM has been all but giving away. The fact is that Advanstar’s highly-attractive fashion and licensing markets account for just 60% of total revenue and 20 of its 54 exhibitions, which makes the whole acquisition seem even more pricey. Although UBM has made much of the fact that six of the acquired events are now among the combined company’s top 20, Advanstar has added just as much at the bottom end of the portfolio. The long tail just got longer.

After the acquisition, UBM disclosed the US company’s topline 2014 figures in its annual report which showed that total revenues – having grown (surprise, surprise) in 2013 – fell back in 2014. And Advanstar’s relatively low-value “Other Marketing Services” is seen to account for more than 25% of all revenues – almost double that of the parent company.

Make no mistake, UBM remains an attractive business with forecast 2015 EBITDA profits of £263m on revenues of £988m. It is estimated that some 75% of revenues will come from events, fairly well-spread between the Americas, Europe and Asia. Nobody doubts that any break-up value would be substantially higher than the current market capitalisation of £2.4bn.

Strategic flaw?

But the biggest question comes right from Tim Cobbold’s strategic presentation in which he makes clear that the global exhibition industry is attractive because it is growing at 5% annually and yet remains fragmented. But this (almost) single-minded pursuit of “events” may be flawed because:

  • Fragmentation: The events industry does not really exist. In B2B markets, sales-led exhibitions and content-led conferences, involve different skills and business models, even though they are sometimes co-located. Exhibitions usually need purpose-builtvenues and relatively high fixed costs and liabilities. Competitive fragmentation, can, therefore, get expensive. Venues are often controlled by city and state governments, and many are also organisers of competitive events. Other competitors include professional associations and business groups. In the US, for example, 12 of the 20 largest trade shows are owned by trade associations. Conferences, conversely, tend to have much lower barriers to entry.
  • Integrated competitors: Future competition, both for conferences and exhibitions, may come from information specialists in B2B vertical sectors – like UBM in former days. The profitability of such operators increasingly depends on events and sponsorship. These “narrow but deep” integrated media-information groups – which can be natural partners also for professional associations – will provide increasingly tough sector-by-sector competition for pure-play exhibition organisers. Curiously, a strong example of this integration is content-rich Seatrade Communications which was bought by UBM in 2014. On a broader scale, such integration is increasingly evident across the £3.5bn Informa Plc. How long will it be before UBM realises that its former belief in the value of owning content and information platforms – in their own right as well as for events – might just be worth picking up again?
  • Digital disruption: Exhibitions have been growing steadily, at least partly as a face-to-face complement in an online world. Exhibition organisers are variously involved in data management and sometimes in attempts to maintain year-round custody of buyer-visitor relationships through digital services. Although online exhibitions and webinars have mostly under-delivered, it is easy to believe that the rising cost of staging and participating in exhibitions (not to mention the cost, hassle and interruption-risks to travel) will help to spawn digital solutions that capture the imagination – and at least some of the revenues – of exhibitors. Exhibition organisers are not the first industry to believe they are safe from digital disruption.

Those risks relate mostly to the extent to which exhibitions can become more concentrated. Just because a market is fragmented doesn’t mean it can be consolidated: perhaps the role of non-profits and government agencies among venue owners and event organisers means it simply cannot. Further, UBM’s perfectly logical “geo-cloning” of exhibitions like Ecobuild, Game Developers Conference and CPhI might, ultimately, open up the market for more localised competition.

UBM’s share of the £23bn global exhibitions market is 4%. Reed Exhibitions (no slouch in this market) has 6% and has been managed independently of its sister information companies for 25 years. So, market share growth will be far from easy. Perhaps it is secretly hoping to acquire Informa’s growing events (as it once tried) or – bigger gulp – the £890m revenue Reed Exhibitions. But, first, Advanstar will have to out-perform.

If UBM believes what it says about the potential for consolidation, we should expect: the divestment of PR Newswire; culling of the “Other Marketing Services” miscellany; and, presumably, the sale or closure of many of the 200+ exhibitions that are holding the company back.

Since these challenges have been compounded by the Advanstar deal, we should assume it will be some time before UBM decides to amend its “new” strategy. But the tough questions may well start with the company’s half-year results on July 31. On with the show.

UPDATE: 15 December 2015: UBM has sold its press release distribution unit PR Newswire (PRN) for $841m, as it seeks to focus on organising events and exhibitions. It has agreed to sell PRN to Cision, which makes software for the public relations industry and is owned by the private equity group GTCR. (source: Some 80% of UBM revenues (and more of its profit) will now be derived from events, the company said.

UPDATE: 13 December 2016: Acquisition of Allworld Exhibitions

UBM plc  announces today that it has agreed to acquire Allworld Exhibitions for a cash consideration which values the business at US$485m on a debt and cash free basis. All world – which has been variously describing itself as an “alliance of privately owned exhibition organising companies” was described by UBM today as “the leading privately-owned Asian exhibitions business operating 51 trade shows in 11 countries and across nine industry sectors.

Allworld generated revenues of $97.2m and EBITDA of $37.6m during the 12 months ended 30 June 2016. The deal was considered by analysts to be pricey, since it was equivalent to 14x the EBITDA forecast for 2017. There was further concern that many of the exhibitions being acquired were relatively small and added to UBM’s long tail (just as the acquisition of Advanstar had done almost two years ago. No fewer than 26 of the 51 events acquired have less than £2m of turnover. These two deals, completed in Tim Cobbold’s first two years as CEO of UBM, are equivalent to 55% of the company’s current market capitalisation.


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