Media Fortune Fame & Folly

Now for Reed + Informa?

It is painfully ironic that exhibitions – the one sector which has enjoyed consistent growth throughout the 15 years when all other traditional media have been shredded by Google and Facebook – should now be the most affected by Covid. Even as the medical emergency abates, trade shows may face the prolonged impact of restrictions on public gatherings, travel and hospitality – and interruption to the economic growth that had fuelled the exhibitions boom, especially in Asia.

After a decade of 6% growth rates, AMR International estimates that the $30bn worldwide exhibitions industry will shrink by at least 60% in 2020, through the cancellation of hundreds of events. Few expect the market to rebound fully before 2023. The £1bn fundraising share issue by Informa, the world’s largest exhibition organiser, gives some clue to the Covid damage so far inflicted on trade shows.

Informa had overhauled longterm market leader Reed Exhibitions (owned by the RELX information services group) with its £4bn acquisition of UBM in 2018. The relatively easy regulatory approval for the deal underlined the continuing fragmentation of worldwide exhibitions where the top five organisers account for only 15% of the market, and 19 companies for 27%.

That’s why we might expect major M&A activity over the next year, including, perhaps, the ultimate… a Reed-Informa deal involving:

  1. The £2.7bn merger of the world’s two largest exhibitions groups
  2. The merger of Informa’s £560m-revenue Taylor & Francis academic publishing with RELX’s £2.6bn scientific division

The rationale for such a merger has been sharpened by Covid. Trade shows have long seemed to be a non-core business for RELX, accounting for 16% of revenue and 13% of profit. But – together with the Risk & Business Analytics group – exhibitions had been faster-growing than the core scientific and legal publishing divisions. Covid has changed that. Reed Exhibitions (RELX’s smallest division) will – at least for the next two years – also be its worst performing.

Before the pandemic, the idea that RELX should divest its exhibitions (for a price of what, just six months ago, might have been 15 x EBITDA) had been discussed by the parent company, following approaches from private equity. Would-be investors had been appetised by the sector’s attractive cashflow characteristics but also by the potential to improve on Reed Exhibitions’ below-average 26% operating profit margins (Informa is 35%). Hiking the margins could be the prize for cutting Reed’s long tail of smaller shows.

In 2019, one rival estimated it could increase Reed annual profits by £50-75m – which would push the margin to some 30%. But that was then.

The real reason why the ultimate exhibitions merger may happen in the slipstream of Covid is that these two UK-owned companies are highly complementary:

  • Of the estimated 450 exhibitions markets served by the companies, fewer than 13% are contested both by Informa and Reed. Some 24% are (more or less) Informa only and 63% are Reed only. There does not appear to be a single mainstream market where Reed is no.1 and Informa no.2 or vice versa
  • Informa’s top five events are in: pharma ingredients; healthcare; fashion; power; and construction. Reed’s are in: medical devices; travel; interiors; electronics; and heating & ventilation.
  • Reed has some exceptional businesses like in Japan, where it’s the market leader and may generate 10% of its trade show revenue and profit. It also has strong positions in France (15% of revenues, including Midem), Germany (10%), Brazil (7.5%), and Austria (7.5%)
  • Informa generates some 70% of its revenue in North America and Asia, almost double that of Reed
  • Reed Exhibitions generates 29% of its revenue from visitors and 71% from exhibitors. Informa is 12% visitors, 80% exhibitors and 8% sponsorship. They’ve got something to learn from each other.

The two companies are a near-perfect fit and the combined group (based on pre-Covid 2019 results) would have a neatly balanced 25-30% of revenues in each of Europe, the Americas, and Asia. Neither of these two UK-owned exhibitions companies has much activity in their sluggish home market: just 4% of the combined trade show revenue. That too is a strength.

Further, the “new” global exhibitions market leader would have a combined market share of some 10%, nothing to worry the regulators. But the company would be five times the size of its nearest competitor.

B2B exhibitions were once largely owned by non-profit trade associations, as they often still are in the US. But global exhibitions ownership is now dominated by European companies which account for the world’s three largest organisers and seven of the top 10.

The global exhibitions industry all but started in the US, in 1970. That was the year pioneering trade magazine publisher Cahners entered the “tradeshow” business with its acquisition of Charles Snitow, owner of national and international expos showcasing cars, consumer electronics, food, hardware, photography and home improvement. Exhibitions were seen as a natural diversification for Cahners which described them as “effectively the same business model as magazines, just in 3D—face-to-face.”

It expanded strongly by buying up a whole swathe of exhibitions in diverse sectors, becoming the market leader with revenue of $90m in 1980. The company which had become the first broad-based exhibitions 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, free from the suffocating pressures of long-established but ex-growth magazines.

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. That was the spur to energetically abandon print and invest in digital.

By the time, it sold the Hollywood newspaper Variety to Penske in 2012, Reed had divested more than 150 B2B magazines and directories in 14 countries that, just four years previously, had accounted for almost 50% of its B2B portfolio. Almost a decade later, the renamed RELX is a £39bn listed group whose £8bn revenue comes from Risk & Business Analytics (29%), Scientific (33%), Legal (21%) and Exhibitions (16%).

The £7bn Informa has had its own journey of transformation.

The company grew out of the 1998 merger of troubled newsletter and conference company International Business Communications and Lloyd’s List, the 250-year-old shipping daily. Over the next decade, Informa went on a buying spree, snapping up the Scrip pharma newsletter (for £120m), the IIR conference and training company (£770m), Datamonitor (£513m), and merging with the academic publisher Taylor & Francis.

In 2008, Informa’s merger talks with UBM collapsed over who would be CEO. Ten years later, the company under new CEO Stephen Carter swooped on UBM which had recently decided to become a pureplay exhibitions company. The combination made Informa the world leader.

In 2019, Informa Plc generated a 32% operating margin from its £2.9bn revenue. Some 50% of the revenue and 53% of the profit was generated by exhibitions. Together with its conferences and electronic networks, Informa’s whole events portfolio accounted for 58% of profit last year. Taylor & Francis accounted for 19% of revenue and 39% of profit.

Informa now has some 500 B2B brands and 4.6m sq m of exhibition space in 15 specialist markets across 40 countries.

The listed company’s assumption that the exhibitions market will bounce back by 2022 carries obvious risk which may be mitigated by M&A and the incremental application of the tech for virtual meetings now being widely used.

Irrespective, the investment case for a mega-merger of the world’s two largest exhibitions companies seems simple enough – subject to price and the timing and geography of Covid. It is reasonable to assume also that RELX could get a decent return from absorbing Informa’s Taylor & Francis into its own academic publishing.

The road, therefore, seems clear enough for Informa to seek to acquire Reed Exhibitions. A part-exchange deal involving Taylor & Francis might pre-empt rival bids. Some kind of cross-shareholding could ease the valuation in tricky times.

Of course, there are other possibilities like a RELX break-up and the sell-off of its fastest-growing division, Risk & Business Analytics, with £2.4bn of revenue and £1bn EBITDA forecast for 2020. It is, of course, a year when few companies will manage anything like that 17% profit growth – and with a highly attractive 60% from transactional revenues and most of the rest from subscriptions. Companies like Verisk and Bloomberg would kill to buy it.

But exhibitions consolidation would create the platform for Informa to:

  • Focus on the major exhibition brands and growth markets worldwide
  • Develop best-of-class technology to create year-round transactional relationships between exhibitors and visitors; and integrate virtual access and broadcast-streaming in order to maximise global participation at live events over the longterm
  • Create high-value information services including statistics and price indices in its key exhibition markets. Not just promotional emails, trade magazines or content marketing, but the kind of exclusive, must-have information that subscribers of Euromoney, Argus Media, and Reuters pay for. Such data would enhance the quality of exhibition relationships and also diversify earnings.

The Covid outbreak has created the opportunity for Informa to snatch Reed Exhibitions, consolidate its global leadership, and build the 21st century model of an information-rich events group. Get ready.