Just two months after parent company RELX Plc said Reed Exhibitions had incurred a loss of £117m during the six months ended June 30 (compared with a profit of £231m in the first half of 2019), it has confirmed that its largest UK event, the World Travel Market, will not take place in November.
What would have been the exhibition’s 40th anniversary is believed to have originally been budgeted to make revenue of some £20m, with a gross profit margin of almost 50%. It will be “replaced” by a virtual event and hopes to be back in London in 2021.
Reed which (until Informa’s acquisition of UBM in 2018) had long been the world’s largest exhibitions organiser, last year accounted for 16% of the revenue and 13% of the operating profit of the £34bn RELX whose main operations are in STM, business analytics and legal information.
The eventual disposal of Reed has always looked likely and there have been some rich offers. But the profits just kept flowing. Now, RELX – like the private equity firms which have been so active in trade show ownership – must contemplate a future where travel restrictions and the erratic pattern of urban lockdowns make it increasingly likely that 2021 will be almost as adversely affected as this year for the events industry.
That grim outlook raises the prospect that some of the world’s most successful trade shows may suffer longterm damage from:
- The disruptive cancellation of two successive annual events
- Future profit margins reduced by virtual event activity and by the medium-term loss of international attendees. Virtual events might eventually account for “only” 10% of longterm activity, but they could still be an expensive incursion for the exhibitions industry
- Insurgent events and startups encouraged by venue owners
One of the enduring strengths of trade shows has been the cashflow characteristics under which exhibitors pay upfront (sometimes up to a year ahead) while many of the costs fall due only when the event takes place. The most successful shows have exhibitors at each event booking for the next one.
This model could be seriously disrupted if annual events don’t take place for, say, 2-3 years: an industry cycle can be broken and expenditure may be dropped from budgets by exhibitor companies which themselves will be wrestling with worldwide recession.
Clearly there is a distinction between exhibitions that are overwhelmingly national rather than international, and not all countries (then or now) face the same levels of disruption. But, even for many shows where exhibitors are largely domestic, top slice international attendees have helped to turbocharge profits. This means that, even the many trade shows that can bounce back readily, will face pricing and cost pressures, at least in the medium-term.
The unfolding scenario might be expected to lead to:
- Exhibition company “mergers”, perhaps including the world’s two leaders Reed and Informa which have neatly complementary portfolios. The £5bn Informa’s share price has halved this year. But there will be plenty of others also seeking to safeguard value (and cash) during a prolonged shutdown
- Information/publishing company mergers with exhibition organisers in specific markets and/or geographies. Accquisition of information companies might especially appetise private equity owners of trade shows hoping to smooth over exhibition investment losses
- Acquisitions of trade show brands by venues. Even in places where venues are not publicly-owned, many local and regional governments are heavily invested in exhibitions and may help to fund their survival including through M&A
It may seem a bit early for many of the trade show organisers which have so recently enjoyed operating in what had, for more than a decade, been the best-performing media sector. Their performance had been fuelled by fast-growing countries (trade shows are a great catalyst for industrial development), especially in Asia – and by the boom in new venues.
Trade shows are not one of the sectors where systemic trends have simply been accelerated by Covid. But the onset of travel restrictions, social distancing and worldwide recession has changed everything for them too.
Exhibition companies now need to get real. Some could start by producing viable schedules for future shows rather than slowly dripping out the bad news. It is notable that Reed announced the postponement of its World Travel Market just seven weeks before it was due to take place. Who was fooling whom?
The toughest part, though, is that even well-funded trade show survivors will have to sharply reduce their expectations in a market that once routinely valued assets at 15x EBITDA; profitability might take a decade to recover.
Most of the Covid refinancing of events companies has assumed that things would return to something like “normal” early next year. Now it is becoming clear that organisers large and small will suffer heavy losses and postponements well into 2021, the rescue deals should soon begin. Get ready.
