Media Fortune Fame & Folly

So what is it about trade shows?

In recent editions of Flashes & Flames, the “lost” media of Trade Shows has come under the spotlight. When will they fall to the web? Is digitalisation finally disrupting events? “How does Covid affect Trade Shows?” Above all else: “How have they appeared to dodge the internet bullet?”

All of these questions are taken very seriously in the upper echelons of the industry. But (this is a personal opinion) when addressed by outsiders, something vital seems to be ignored – the simple question: “Why do people go to trade shows?” 

You wouldn’t invent a mouse-trap without asking “Why do people want a mouse trap?” The inevitable assumption – in what we might broadly call the “media establishment” – has always been that trade shows are a media form, and thus are similar to other media forms.

In other words, that they are essentially about “selling” (exhibiting) or “buying” (visitors) – and indeed exhibition executives regularly parrot this cliché. Thus, trade shows are really just three-dimensional magazines (I am excluding consumer shows – which are a very different business). And, if this is what one believes (or, more accurately, never questions), then it is credible to assume that digitalisation must eventually disrupt the sector. But it is also fair to ask: “If so, why hasn’t it happened already?”

The following is a personal view.

Trade Shows are not a true media form – they are something else.

Critically – unlike all other media (including digital) – they do not sell on cost per ‘000.

It is the only media where the “consumers” (the visitors) travel to the product and not the other way round (thus the consumers are highly self-selecting and self-motivated). They are not price sensitive in the way other media are (a show with 1,000 visitors might charge just the same as one with 10,000 visitors).

The barriers to entry are often very, very high (because of the tenancy slot system) compared with other media. You might have a great idea for a new Giftware Show, but, because there are so few large exhibition halls, you will find it very hard to put it on profitably. The cost of entry is not necessarily high, but this is of little value if the barriers are tall enough.

And what happens at Trade Shows is totally visible to everyone: you can see the hall, how many people are in the hall, and what they are doing. You can talk to the exhibitors. With other media, you really don’t know how many eye balls see what you spend (apart from Google etc – which isn’t to be discounted, but then nor are bots which, on occasion, can represent the majority of hits).

The intangibles are as important as the tangibles

Above all else, the intangibles are as important to trade shows as the tangibles. This is the key point. Of course, there is buying and selling, particularly at transactional shows like gift, clothing and furniture. But, in many events, it is simply not the major driver.

We all think we know why people read newspapers or magazines, why they go to web sites to buy a new kettle or book a holiday home, why they listen to a radio programme or watch a TV show. But the assumption that trade shows are solely about buying and selling is just not born out by the reality.

In a nutshell, Trade Shows cannot be treated as if they are a standard medium.

Trade shows reflect human traits not just commercial ones

It can be very irritating for conventional publishers to observe that, somehow, trade shows keep dodging the digital bullet – particularly those people who rejected trade show investment in the past because they saw it as the grubby, unexciting, slow moving, bottom end of media. But…

People go to trade shows because they really do want to be part of their annual industry gathering. They go to see old friends. They go for PR. They go looking for jobs. They go to see what other companies are doing. I can go on – and will. They go because they actually fancy getting out of the office or away from home for one, two or three days. 

These are human traits, not “commercial” ones. When we conduct in-depth, face-to-face research – which we have chosen never to publish – the single biggest reason our interviewees give for going to events is “social” – drinks, dinners with friends etc, a day out of the office, just looking around. A surprising number admit to the ability to conduct a “relationship”. Above all other markets, this applies to the US – where the annual industry event is often treated as a third week’s holiday in a country where two weeks is still the norm: why do two-thirds of the major events happen in Las Vegas and Orlando?. Flashes & Flames is right to say that the early re-opening of US events will indicate the future – but the US does have this unusual characteristic to take into account.

In traditional media forms, such intangibles are difficult to identify – though buying Vogue or The Economist solely to display on the coffee table may perhaps be one.

Trade Shows have existed since the Leipzig and Frankfurt trade fairs were first licensed by the Holy Roman Emperor in the 1240s – and their basic forms have not really altered much in eight centuries.

Is digitalisation a false dawn?

Digitalisation has become a visible debate in the last 18 months (much touted by industry advisers) – but there is nothing new about the basics. Speaking just about my company CloserStill, all of our events are content-led and many have hundreds of free theatre sessions on the show floor. Many of these sessions have been placed online since the company started in 2009: veterinary surgeons, for example, can choose to come to our shows live or have online access to 40-minute sessions. In this sense, YouTube helped to digitalise parts of the trade show business almost a decade ago. The same is true of numerous conferences worldwide. 

When broadband spread around 2004, I foolishly predicted that major conferences would be adversely affected. Why would attendees spend perhaps $1,500 to travel to the live event, pay $800 to the organiser, book hotel rooms etc, when they would increasingly be able to see the sessions online? I was wrong. People still go in large numbers and have not drunk the digitalisation Kool-aid. The comment by Informa CEO Stephen Carter in February that he did not expect digitalisation options to detract from the overall value of his trade shows was a bellwether.

No-one in the industry dismisses the existence of digital alternatives, but the threat probably comes from startups outside the industry which are stand-alone and do not seek specifically to compete with existing events (an example might be Ascential’s Money 20/20). These will tend to move towards gaps in “new” sectors not yet covered by a multiplicity of events.

The rhinoceros in the room – Private Equity

In an 18-month period in 2018 and 2019 – just before Covid – there were six large trade show deals brokered in the UK (five of which were private equity-driven) and which aggregated more than £7 billion (declaration: CloserStill was one of these six). Twenty years earlier, it would have been inconceivable that £7 billion would be spent in a single 18-month period buying trade shows. If investors want to spend £7 billion in a few months, they will change the face of any industry. That’s what private equity can do.

The Trade Show business could almost have been invented for Private Equity because of its core attractions:

  • Very high profit margins (the big groups run at 25-30%)
  • Great cash conversion – usually 100%+ and the cash comes in upfront
  • No capital expenditure, apart from acquisitions
  • The slow annual cycle and re-booking creates high predictability
  • The tenancy slot system provides high barriers to entry <“I like a business I can build a moat around” as Warren Buffet has said>
  • A very unconsolidated industry creates plenty of opportunity for acquisition.

Another crucial point is that the financial firepower which Private Equity, SPACs, Family Offices etc 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 will end up somewhere, much of it – by some complex, osmotic process – in the hands of these major funds (just as it did in the recession of 2009). 

Taking 2008-2010 as a template, we saw asset prices across-the-board increase way beyond the rate of inflation, and it is difficult to see why the same won’t happen again. Between 2009 and 2020, average EBITDA purchase price multiples (across all trade show deals) in the US rose from 8 times to 12 times in a flat, low-interest rate environment. On that basis, the argument that multiples post-Covid must now fall may well be wrong. A tsunami wall of money can be a powerful driver of prices.

Why does geography matter?

There are still, of course, many single events which operate independently. But running an individual event is very different from managing a portfolio – of which Reed (now RX) and Informa are the biggest, with hundreds of exhibitions. An absolute truth about running “large” trade show companies is that you are NOT actually running a single company – you are running a hundred companies. Thus, the classic models (Coca Cola if you like, but also 95% of businesses in the world) really don’t apply: you simply don’t have a small number of products which you develop, promote and sell everywhere. 

External executives coming into large trade show companies often find this very difficult to get their heads round – you can have a fabulous show, growing happily somewhere, but with a very similar show in decline alongside it. The difference between the two may very often be, simply, the people running the shows: ideally you need 100 CEOs all of whom know their sectors. 

Although it is an oversimplification, this basic truth is the single biggest problem in running the larger groups: how much do you centralise, how much do you impose from above, what sort of matrices do you apply (geographical, sector, by sales, by marketing, by philosophy – eg one sales floor, one marketing floor)? What does your Org Chart look like? Where do you find those 100 CEOs?

There are few economies of scale

Many of the same issues apply when one considers geography. It has been traditional for the larger groups (particularly RX) to expand worldwide – to “plant flags” in as many places as possible (“We must be in China!!!” says the Chairman). All bow to the gods of GeoCloning! But, from the point of view of an investor like a private equity company, this makes little sense. I have never wanted to be in China or India or South America just for the sake of being there. What sensible shareholders are looking for is EBITDA, real cash flow, consistency of performance, and predictability.

It might look good when sitting in a pension fund presentation to have a globe with 60 flags stuck into it, but more flags does not mean more EBITDA. Another core truth: there are very few economies of scale in the trade show business. What an investor should want is to see a portfolio – maybe 30/40/50 events of a good size, with growth potential, in “reliable” markets.

Of course there can (and should) also be some launch “gamble events”, but they are not the core of the value. It really doesn’t much matter where those events are. There is no reason – from a valuation point of view – that any of these events must be in (and I am not picking these geographies for any deep reason) Africa, India, Russia, South America, or China. If the 50 events are in major geographies – and there is some sector spread so that all eggs are not in the same basket – then the value is established.

What about the next five years?

What applies to Geography can also apply to the sectors themselves. In the companies I have chaired (and ,in particular, CloserStill), we have tried to direct our investment towards sectors which represent an increasing share of GDP in most markets (it is no secret that medical/healthcare, e-commerce, e-learning are such sectors). This does not mean that other sectors cannot be enormously valuable: over the years, I have invested in Furniture – a solid, stable sector which is unexciting but which fits very well with the “touch, feel, meet” that trade shows offer.

So where does this lead us? I don’t like to make predictions, particularly about the future (witness getting conferences completely wrong post-Broadband), but there appear to be some developing trendlines.

RX are looking at changing re-book procedures, so as not to automatically sell on a number of square metres and price per sqm. In part, this derives from the perception that the big exhibitors derive a larger benefit from the event than they pay for (why do the same companies keep coming back to the larger events?). It also opens up the familiar “spider at the center of the web” debate – which is that trade shows can offer more than just an annual experience with the databases and industry knowledge which they possess, but do not necessarily exploit. This is an experiment which I will watch with interest.

There has been a flurry of activity in the 1-2-1 market, particularly from Clarion Events. It isn’t clear whether this is an adjunct to existing events or is a move into a different sector (it is not particularly logical to have 1-2-1s at trade shows as it takes buyers off the floor). This is not a new progression – the UK-based Richmond Events was very successful in the UK in the 1990s but rejected approaches from buyers (particularly Reed) which wanted to add that expertise to their trade show business.

There is the perennial “Will Reed Elsevier sell RX?”. There is no obvious movement and it is hard to see how the RELX parent would deal with the almost inevitable negative arbitrage on the price. Against that, if cash were needed for an alternative acquisition, then RX could be detached without trailing wires.

The bigger groups have disposed of many events – and staff – during the crisis and they may not intend to grow them back post-Covid. They have also laid-off many senior people (one of the more startling consequences). Elements of this will continue, including a reduction in the number of marginal events in the bigger companies which may reflect, in part, the absence of senior management to run them.  Many of these events will not be saleable, but we will see smaller/medium sized companies pick up some of these disposals. 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, I believe, be a flurry of acquisitions until perhaps mid 2022 or even later. The conjecture that there would be distressed cash-shortage sales by now has simply not happened. The great majority of owners, which might be suffering distress, are holding on in the hope that they can run an event in the next six months, prove they are still alive, and then try to build back to a decent profit level one or two years later. They will hope that this makes them not so much an attractive target, but a more valuable one.

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 goes to private equity, I can see there being two or three large private equity consolidators. I had previously assumed that Informa would stay broadly where it is – but maybe that is too unadventurous. Any business can be a private equity target these days. Informa – with a market cap now of less than £8 billion (41% below its peak) – is certainly not too large to be targeted and private equity generally has increasingly been looking at quoted companies because of the firepower they can bring to bear..

There are already three large North American private equity groups in the mix (Blackstone, Onex, Providence) with Carlyle, CVC, Advent, Texas, Bain, BC and others regularly showing an interest. But these three are not necessarily the ultimate consolidators. Over the period, I think it is likely that the current mid-size trade show players (Tarsus, Hyve, Clarion, EasyFairs, Comexposium – depending on how it emerges from Paris Administration – and, perhaps, even Emerald) will be absorbed into 2-3 private equity-funded mega-groups.

This consolidation has been the historical pattern of newspapers, film studios, television assets, magazines, cinema, and digital start ups in recent decades.  Remember that a private equity-owned business is always available for sale – at the right price. Two or three names will survive as the nominal core of these groups, but they will be rather different animals. It is an interesting debate as to which two or three they might be.

All industries navel gaze, looking at their own players, the personalities and the options within their own worlds. They don’t often look up. But it is a different world post-Covid, and the trade show industry will be shaped by that world.

Philip Soar is chairman of three UK-based exhibition groups – CloserStill, 19 Events, and Brand Events. Previously, he was CEO of Blenheim, the world’s largest trade show group during 1989-1994.

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