The events industry, with many recent examples, remains attractive to strategic and financial buyers – why is investment booming in this space? Eric Lawson-Smith, a partner focused on Media and Internet at M&A advisory firm Arma Partners, explores this question addressing M&A activity.
Consolidation has been a prominent and recurring theme in the B2B events sector over the past 18 months, cropping up most recently with ITE Group’s announcement of an agreement to acquire Ascential Events for £300m or approximately 13x trailing EBITDA. The industry’s macroeconomic tailwinds, the structure of the market, and the characteristics of the business model explain why we can expect this trend to continue.
First and foremost, the global B2B events market continues to grow steadily. Analysis by the Center for Exhibition Industry Research (CEIR) found that the market has been growing at a compound annual rate of c.5%, from $40.5bn in 2014 to a projected $49.5bn in 2018. CEIR forecasts this trend to continue for the coming decade.
In addition, it’s a market characterised by high profit margins and strong cash flows. Arma Partners’ analysis of Capital IQ data shows that, in 2017, a selection of leading events companies generated a median EBITDA of approximately 30% of revenues. A high-margin sector that consistently outperforms overall economic growth can be expected to attract sustained investment from both strategic buyers and private equity investors alike.
However, it is also a mature market in which the established reputations and brand recognition of the leading exhibition franchises present a significant barrier to entry. Consequently, mergers and acquisitions are the most effective way of scaling a business by acquiring pre-eminent event brands, as well as bringing access to new geographic and vertical markets while extracting the efficiencies that come with scale.
Informa’s £3.9bn acquisition of UBM, approved by shareholders last month and following on from its bold and highly successful purchase of Penton, is one recent high-profile example of M&A being used to create a ‘super-group’ that has leapt beyond RELX to become the world’s largest B2B events organiser by revenue. Together, UBM and Informa constitute a strong global platform that operates leading events brands across industries including health, TMT, and finance, in geographies including North and South America, Europe, Asia, and the Middle East.
The dynamics of the events industry are also highly attractive to private equity investors. Strong profitability, cash generation and a high degree of forward earnings visibility given event re-booking, mean that events companies are capable of supporting significant levels of relatively inexpensive debt while sustaining steady growth – this drives stable and attractive equity returns. These attractive returns have been particularly important drivers of M&A activity in the events market and, with over $1 trillion of committed but as yet unspent private equity capital in the world, the tempo of deal-making is very likely to remain high in the near-term.
Private equity deals in the events industry are particularly well-suited to investors accustomed to implementing a ‘buy-and-build’ strategy. Blackstone underscored the effectiveness of this strategy through its £600m acquisition of Clarion Events in 2017 and then Clarion’s acquisition / merger of Hong Kong-based exhibitions operator Global Sources in February. The combined business boasts substantial scale across Europe, Africa and Asia, with the acquisition of the US events and B2B media company PennWell in April consolidating Clarion’s position in North America.
There are several important questions that hang over the sector for the coming 12 months. How will RELX respond to the loss of its position as global market leader to Informa? Will the sizeable private equity-backed acquirers, notably Clarion and Comexposium, pause for breath to digest their acquisitions or drive for still greater scale? Will Emerald make a bold and sizeable move outside North America?
The answers to these questions rest – at least in part – on the strength and direction of both the debt and equity markets. These drive the ability of buyers to fund deals, but also the ability of private equity owners to realise value - either through sales or IPOs – from the companies they have backed. Current market conditions are some of the most positive we have witnessed in recent decades. A growing awareness that this cannot – by definition – continue indefinitely will begin to shape strategy at the leading groups.
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