Everybody loves exhibitions. They are the traditional media which have been growing revenue at an average of 6% for the past 10 years, thriving as an antidote to the virtual world for business people everywhere.
It’s a highly-competitive £30bn global industry and the signs of success are easy to find: 44% of B2B exhibition companies increased operating profit in 2017, 70% expect revenue growth this year, and no fewer than 40% are targeting international expansion, according to trade body UFI. It is fuelling huge growth in global exhibition capacity, especially in large purpose-built venues. And, of course, there’s an M&A boom.
UBM had a 200-year history spanning all UK media including daily newspapers, broadcasting, outdoor advertising, magazines, market research and B2B, before it became a pure-play exhibitions company in 2015. It consolidated its position as the world’s second largest exhibitions group during 2014-16 by splashing out almost £1.5bn on Advanstar in the US and Allworld in Asia.
Meanwhile, across London, Informa was buying no fewer than 10 exhibition companies during 2015-17, culminating in the £1.2bn US acquisition of Penton. As a result, the UK company, once best known as the publisher of shipping daily Lloyd’s List, became 60% dependant on US revenues.
These two UK public companies have been storming the market. Informa has more than tripled its exhibitions revenue in less than 10 years, while UBM has more than doubled. They reported 2017 revenue growth of 74% and 30% respectively. Then came the bombshell.
In January this year, Informa announced the largest-ever exhibitions deal in a recommended £4.3bn bid for UBM. When the acquisition completes on June 15, Informa will be the world’s largest exhibitions group, ahead of Reed Exhibitions. A decade ago, it was not even in the top 10.
According to analyst AMR, the deal will push the £1.1bn revenue ReedEx firmly down into second place after 30 years on top of the pile. But it is still much larger than the clutch of venue-owning local authorities in Frankfurt, Dusseldorf, Munich and Basel, after which come the fast-growing private equity-owned French group Comexposium, China’s CFTC and the quoted US company Emerald. The UK companies Clarion (now owned by Blackstone private equity), Ascential and the Daily Mail Group are also among the 20 leading exhibition groups.
The rankings underline how B2B exhibitions – once largely owned by non-profit trade associations – are dominated by European companies. But the global industry all but started in the US, in 1970. That was the year B2B magazine publisher Cahners entered the “tradeshow” business with its acquisition of Charles Snitow, owner of national and international expos showcasing automobiles, consumer electronics, food, hardware, photography and home improvement. Some of the events were large. The International Automobile Show in New York, for example, attracted 500k visitors in 1970. Exhibitions were seen as a natural for Cahners which described them as “effectively the same business model as magazines, just in 3D—face-to-face.”
Cahners expanded strongly by buying up a whole swathe of exhibitions in diverse sectors. In 1980, it became the market leader with revenue of $90m. The company which had become the first broad-based exhibition organiser in the US, soon did the same with acquisitions across Europe and Asia. In the 1980s, it merged with Industrial & Trade Fairs, a UK-based organiser started by the Financial Times and the diversified media group then known as Reed International. Cahners had been acquired by Reed.
In the mid 1990s, Reed took what seemed like a radical step – in the US and UK – of separating its exhibitions from the B2B magazines which had largely created them. It proved to be a far-sighted move which gave fresh impetus to launch and acquire new events almost everywhere. By 2001, when the web was beginning to disrupt print media, the then Reed Elsevier’s exhibitions division had increased revenue by 25% to £446m – the only profit growth in its faltering B2B media group. Its once mighty magazines and directories, largely funded by advertising, were under attack.
The company’s Reed Business Information (RBI) still had £1bn turnover back in 2001, more than 50% of it in the US. But fast forward 10 years and profits were down by one-third, with just 25% from the US. By the time, it sold the legendary Hollywood newspaper Variety to Penske in 2012, RBI had divested more than 150 B2B magazines and directories in 14 countries that, just four years previously, had accounted for almost 50% of its portfolio. In the US, Cahners (a pioneer of ‘controlled circulation’, advertising-funded magazines) was no more.
By 2008, RBI was focused on a small number of increasingly global, data-led, services primarily in banking, aerospace, chemicals and property, funded by readers not advertisers. But the consolidation descended into farce as Reed Elsevier abruptly decided to divest the whole of RBI, only to abort the sale process after 12 months of disappointing offers. Reed bosses made a mess of the human relations by saying they would instead try to sell the subsidiary “in the medium term,” when conditions became more favourable. So the talks and scuttlebutt continued for a further year. Then, suddenly, it all changed again and RBI was withdrawn from sale. The reason soon became clear.
In 2011, RBI quite simply became a star performer, with record profit growth. It was the seemingly unexpected fruit of a stunningly successful digitalisation, the switch from print and the development of high-value consultancy in core markets. RBI’s corporate reward for a brilliant transformation was the £343m acquisition of banking database group Accuity, effectively doubling RBI’s value. In 2012, it also netted a windfall £110m by selling its scarcely-profitable Totaljobs digital to Germany’s Axel Springer.
The one-time B2B magazine publisher is now a vital part of RELX’s Atlanta-based grouping of Risk & Business Analytics. The £2.1bn-revenue group – which includes LexisNexis Risk Solutions, Accuity, and FlightGlobal – employs more than 8,000 people and last year made operating profit of £759m. It is RELX’s second largest division behind STM. Last year, it was the fastest-growing. The sign that this is where the parent company now wants increasingly to invest is this year’s $580m acquisition of cyber-security firm ThreatMetrix, its largest deal for more than 20 years. It’s a long decade since the Reed Elsevier annual report dissed RBI as “less consistent” while asserting that its targeted “workflow solutions opportunity is much less clear”.
That same report had eulogised the “fast growth, high-return business” of exhibitions, which it had always planned to retain after selling RBI. Now the tables have been turned. Reed Exhibitions is the RELX division rooted in fourth place. But last year, it made operating profit of £285m on £1.1bn revenues. It operates more than 500 exhibitions in 43 industries and 30 countries. More than 7m people attend its events which are broadly split both geographically (40% Europe, 21% North America, 39% RoW) and by sector (including manufacturing 14%, media 14%, property 9%, travel 8%, healthcare 8%, homes 7%, and jewellery 6%).
It all sounds pretty good and ReedEx owns some of the world’s most successful exhibition brands including Midem, Mipcom, World Travel Market, Infosec, Fibo, and ComicCon. But this is a company under pressure, with:
- Operating profit margins of 26% – strikingly lower than the equivalent businesses of Informa (36%), UBM (36%) and Ascential (41%). These competitors also have much higher profit growth than ReedEx. Not what you expect from an established market leader.
- Acquisition expenditure of some £40m on an average of 17 events for each of the past five years. If last year’s acquisitions had, say, 20% profit margins, those “new” events may alone have accounted for almost 50% of ReedEx’s £16m profit growth, revealing minimal organic growth. That continuous stream of bolt-on acquisitions – and also new launches, 36 in 2017 alone – suggests that profits and growth rates are being held back by a long tail of marginal exhibitions. It’s a crude measure but Reed’s average revenue per exhibition, at £2.2m, is one-third less than that of UBM.
Perhaps the subtle weakening of the long-time leader has helped to encourage the challengers. The attractions of exhibitions to media companies have long been clear. The industry’s powering global growth is a reflection of the sheer value of people meeting each other, seeing products or services being demonstrated, and negotiating deals face-to-face. Exhibitions are the original “interactive” media. For organisers, there have traditionally also been the high profit margins and positive cash flow of exhibitors paying upfront, often many months before events take place. But, on the flipside, there are bumpy parallels with the digital world of all-powerful platforms.
The cold fact is that a relatively small proportion of the costs of exhibiting is actually paid to the organisers. Except when the organiser is also the hall owner, the costs of the venue, stand/booth design, staffing, hospitality, and promotion dwarf organiser revenues. Major exhibitions must contend with the monopoly power of large venue owners in major cities. That is why organisers are so keen to arm themselves with must-have global exhibition brands. But it’s a tricky balance between regional, national and international events. For all the successes of exhibition “geo-cloning”, there are many failures to remind the industry that global often doesn’t beat local.
Ultimately, exhibition companies must do much more with technology. But the tech to enable visitors to ease their progress through large exhibitions is patchy, to say the least. On the web, many exhibition sites are visually attractive but have limited functionality and provide scant information. There are frequently only half-hearted attempts to build relationships rather than just to achieve a sale.
The online focus is often on helping would-be visitors and exhibitors to do nothing more than submit an email enquiry. There’s little streaming or online video. Would-be exhibitors can’t get the visibility, pricing and booking options so familiar to customers of theatres, hotels and airlines. You can’t help feeling that digital disruption is coming and even UFI says that most exhibition companies expect rapid medium-term revenue growth from as yet unspecified new business models.
Exhibitions are widely involved in conferences, webinars and awards competitions, and have customer databases. But future success must increasingly depend on using tech to: improve the visitor-exhibitor experience, create a remote access for people who can’t get there, and connect events with compelling year-round digital relationships. This connectivity might variously include:
- Online procurement services and information exchanges beyond the exhibition hall
- Exclusive industry statistics, indicators and high-value content
- Complementary media eg streaming and online TV
- Membership organisations
If that sounds a bit like a route towards 21st century versions of the trade associations and networks which originally spawned so many B2B exhibitions, it may be just the way to go. It’s an agenda that may suit the new market leader because Informa is a seriously-digital business, professional and scientific publisher. So is the mighty RELX, of course. But this really looks like the start of a new era in global exhibitions.
The company that effectively created the industry is slipping behind in so many ways, and its parent company has never been afraid to sell businesses once so proudly owned. That’s how RELX has been able to grow earnings per share at 7-10% for the past five years. So, we should not be surprised by rising speculation about the future ownership of its exhibitions.
There are four good reasons why RELX should sell Reed Exhibitions:
- It is the smallest of RELX’s four divisions and, in 2017, was the slowest-growing. Exhibitions are clearly non-core to a group whose business, scientific and professional information is faster-growing and with more dependable subscriptions and transactional revenues. Almost 75% of all RELX revenue is from electronic media. Its 2017 annual report introduction is a giveaway: “RELX Group is a global provider of information and analytics for professional and business customers across industries.” But analysts seeking clues to the company’s continuing commitment to exhibitions have sometimes been persuaded by expansive talk of group-wide technology sharing. More telling, though, is the unconvincing way that ReedEx is lumped into the group’s online “transactional” revenues in professional sectors. That’s a real stretch. Exhibitor and sponsorship revenue are, of course, much more like the advertising that the parent company once aggressively rid itself of. Similarly, it downplays the even less strategic portfolio of B2C exhibitions which may account for at least 5% of ReedEx’s revenue.
- Exhibition valuations are hot, with UBM being acquired for 13-14 x EBITDA. Even Ascential’s declining UK exhibitions this month were sold to ITE for 13x. ReedEx might attract a bid of almost £5bn (ie 17x 2018 profit of, say, £300m) – equivalent to 15% of the £33bn value of RELX. The access to funds of private equity-owned Clarion (UK) and Comexposium (France), and the public companies Informa, Ascential and Emerald, would guarantee a juicy auction for ReedEx. Some reckon that China’s fast-growing CTFC might also want to go global. The fragmented global ownership of exhibitions means there should be few regulatory barriers to acquisition by even the largest operators, none of which will have market shares above 7-8%. (ReedEx has long been market leader with just 5%)
- ReedEx may be past its best. Intensifying competition and the loss of long-term market leadership may reduce its already-stuttering profit growth – and also increase the cost of future bolt-on acquisitions. Its relatively low profit margins are now unlikely to improve. But prospective buyers know that cutting the long tail of exhibitions will increase profits – as Informa will soon demonstrate with UBM.
- RELX could use an exhibitions windfall. Its acquisition of ThreatMetrix shows the company’s renewed appetite for substantial acquisitions in B2B, Legal or STM. Or it could pay-down its £5bn borrowings.
That’s why exhibition groups and investors alike have been energized by the £9bn Informa-UBM combination. A year of consolidation in exhibitions has only just begun.