How Much Is Your Show Worth?

You know it in your heart. In five years, your show's going to be bigger than ever. It's in a growth industry. The business outlook is good. But you want to retire -- or start a second career, or spend more time with your family -- today. How much money can you get for your show now?

Placing a cash value on a trade show or business can be an intimidating exercise in numbers crunching. Sellers want to be compensated for the sweat equity and investment in launching, nurturing and growing the business. Buyers want reassurance they've purchased a viable property which -- absent its founder and prime mover -- will deliver a good return and continue to serve its industry sector.

Though differing circumstances bring sellers and buyers to the negotiating table, the selling and buying process remains the same. It involves preparation, positioning, financial and marketing analysis, valuation, give-and-take compromise and, finally, a settlement. With proper planning, both sides can reach an agreeable middle-ground and leave the table satisfied.

Future potential
Allen M. Oppenheimer, President of A.M. Oppenheimer Inc., a La Jolla, CA-based brokerage and financial services firm, has evaluated a variety of businesses for sale, acquisition or merger, including trade shows. Focusing on companies in the middle-market range -- $1 million to $60 million, he says the first step in estimating the value of a show or business is to determine its "true" historical profitability.

"Closely held trade show companies tend to reduce profits to save on taxes," Oppenheimer says. "When you're selling a show, the buyer wants to know its true historical profitability, so the income statements need to be adjusted to account for owner-related costs and expenses, non-recurring costs and expenses, and any other items that distort the true profitability." The balance sheet should also be adjusted to reflect the true replacement value of fixed assets and inventory.

After establishing a track record for past profitability, Oppenheimer helps trade show management companies determine their prospective earnings potential. His goal: to substantiate the future potential of a show and determine how much a buyer would be willing to pay for it.

"Using our own market research capabilities, we work toward forecasting earnings potential five years into the future," he says. "The recast historical and anticipated cost and expense relationships are used to make assumptions required to prepare pro forma income statements for the future years."

Future income must then be expressed in present-day dollars. Oppenheimer explains, "By using the pro forma income statements, we can compute the pretax cash flows for five years. These are then discounted to reflect their present values. Taking into account assumed return-on-investment (ROI) requirements, the present values of future pretax cash flows are used to test and substantiate the estimated value of the business."

In 1994, when Ziff-Davis Exposition & Conference Co. put its trade show division, Z-D Expos, on the market, the group successfully argued that it competed in a high-growth market niche and, therefore, had high growth potential. "Luckily, Z-D had an excellent track record to back up its claims," says William Lohse, President and CEO of the Foster City, CA-based show producer, "and we could argue that trade shows are a more valuable business than some people may have thought in the past."

Lohse joined Softbank Exposition and Conference Co. following its successful bid of $202 million for Z-D Expos. "Given that new shows are difficult to launch successfully, we were also able to contend that in the computer industry, which is such a quickly growing business, the multiples are much higher than in other industry sectors," he says. "So, in a very real sense, Z-D was able to convince Softbank that next year's business is already completed by the time this year's show closes."

Past performance
Unfortunately, not every buyer buys future projections. Detailed financial and marketing analyses of past events may be more telling. "Unlike many acquiring show organizers, we don't pay for future value," says Beverley A. Morden, President and CEO of Southex Exhibitions, Don Mills, Ontario. "We pay for what the owner has been able to successfully demonstrate. If the show's profitability improves, we believe it is largely a result of the changes we make as opposed to the particular value the previous owner may have been able to demonstrate. The exception occurs when the owner is instrumental in creating incremental value."

Southex looks at four years financial history (three previous, one current). "We're interested in revenue, direct expense, overhead and administration expenses," she says. "We look closely at any financial area where there is a lack of clarity about which expenses we would end up absorbing and which expenses would be unique to the prior owner. These are areas where there may be potential for improving profitability."

Using its own financial formula, Southex applies a multiplier to arrive at a purchase price. "The first step we take in acquiring a show is to convert its financial data into our format and allocate our overhead expenses," Morden says. "That way, we pay the owner a multiple of the profitability of the show based on its past history."

To assess how successfully an event has been marketed, Morden gains access to at least three years marketing history. "We review the target attendees, how the staff went about attracting them, frequency and expenditures," she says. "We also look at their public relations efforts and, if they've conducted any types of market research, we ask to see that."

Sometimes the marketing analysis reveals unique strategies. "Owners often have a different perspective than we do on the type of marketing mix, and we want to see what they buy in terms of newspaper, TV and radio advertising," Morden says. "When Southex bought the Harvest Festival Shows portfolio from Steve Kyle, we learned he committed more advertising dollars to TV than we do for our Home Shows or Sport Fishing events. Steve's rationale is that his craft events are a highly visual medium and need TV exposure."

Perception meets reality
A central factor which can determine the selling price of a show, and the time it takes to sell it, is the owner's perception of its value. "Some owners are very realistic in terms of the value they place on their shows," says Morden. "Generally, these acquisitions proceed very quickly. Negotiations take longer if the seller seeks counsel from outside advisors to determine if they feel (Southex's) purchase price is reasonable."

Buying a show from a large company can take as few as three months; buying one from an entrepreneur takes longer, sometimes 18 months. "It tends to be easier when a large company deals with another large company," she says. "Each speaks the same language because the financials are done in similar fashion. Both companies are accustomed to the sales process and know the structure of a purchase agreement. So, things move quickly. It is not always the same with entrepreneurs."

When he was scouting shows to acquire for Advanstar Exhibitions of Cleveland, OH, Scott Sillcox said he met with many entrepreneurs who enthused about the future potential value of their show(s). "They'd say that while their show earned only 'X' this year, next year it would earn 'X+,'" Sillcox recalls. "I had to say to them that we can't pay based on potential." Sillcox now operates his own trade show company, Maple Leaf Productions, in Markham, Ontario.

"If an entrepreneur was adamant that payment had to be based on future earnings potential, we'd suggest that he take the show off the market, run it for one or two more years, and then put it back on the market when it realized the potential he felt was there," Sillcox says. "And, of course, that didn't always happen."

What proof can the entrepreneur use to demonstrate that an event may be worth more than face value? "The best barometer to determine the overall health of any show is exhibitor retention rate," Sillcox says. "A 40 percent annual turnover rate is certain to raise a few red flags; 60 percent is much better and 75 percent is very desirable."

Finding a buyer
Since every buyer has a different formula for valuing a trade show or business, the dollar value the seller has in mind is moot. The real negotiations begin when the seller meets the right buyer. A broker can bring buyers and sellers together and assist with the valuation process.

Robert Birkfeld, whose Port St. Lucie, FL-based firm, The Prescott Group, serves as both broker and consultant to trade show producers, also helps owners to better position their companies for potential sale. "For many people, selling an individual show or exhibition company represents the biggest transaction -- much bigger than buying a house -- they'll make in their lifetime," he says.

"Without someone to advise them on how to position and negotiate, sellers may not realize what they should from the sale," Birkfeld says. "And, there's nothing worse than walking away from money that should have been paid." Broker fees are based on the complexity of the deal.

In the trade show industry, where the community of show producers is tightly knit, buyers and sellers often find each other through word of mouth. "Ours is a small industry," says Philip P. Ullo, former President and COO of Reed Exhibition Companies (REC), who started his own exhibition company last May after taking early retirement from REC. "When word got out, and people learned that we are serious about buying shows and show companies, the word-of-mouth network took over and the phones started to ring. People with shows to sell found us."

Two months after starting Ullo International Exhibition Group (UIEG), Ullo purchased two Orlando, FL-based gift and jewelry shows from DMC Expositions; announced the launch of a third; and acquired Full Circle Media Corporation, a 19-year-old firm with 41 trade shows. "These acquisitions represent a good quality entry into strategic markets," he says.

In the two years since divesting its decorating and audio-visual businesses to focus on acquiring trade and consumer shows, Southex has sold two trade show properties. To find buyers, the show producer went to its competitors. "We simply looked at other show producers who had the same type shows we were interested in selling, called them, and asked if they were interested in acquiring our properties," says Southex's Morden.

To find shows to buy, Southex has never had to look far. "We get an average of three to four contacts a month from people interested in selling us their shows, so we have been very fortunate in that respect," Morden says. "Obviously, we cannot respond positively to all opportunities, but have proceeded with some and acquired several."

A good fit between buyer and seller is one of the most important factors in negotiating a sale. Last spring the 65,000-member Society of Automotive Engineers (SAE), which normally doesn't acquire shows, learned that the Engineering Society of Detroit (ESD) was putting its International Programmable Controls (IPC) trade show on the market.

"I knew IPC would be a good fit with SAE's 23 other trade events, but for some reason the ESD hadn't approached us," says David L. Amati, Ph.D., CEM, Manager of SAE's Meetings & Exhibits Division, based in Warrendale, PA. "So I called ESD's Executive Director and got an exclusive right to pursue acquiring the IPC property."

Hidden assets
When serious negotiations are under way, the owner may be tempted to conceal the process from employees. That approach can backfire. When the news inevitably leaks out, it can create havoc, ruin morale and jeopardize the most important asset a show has: its people.

Both Morden and Oppenheimer say they have negotiated with show owners who've stipulated: You are not talking to any of our employees unless I have a check in hand and the deal is closed. "Until there is a signed Letter of Intent on the table, we urge buyer and seller to restrict knowledge of the negotiations to as few employees as possible," says Oppenheimer.

Having brokered shows on both sides of the table, Birkfeld agrees. "Usually, most shows being bought and sold go to the Letter of Intent stage without the knowledge of operating people," he says. "Eventually, the information slips out, as happens all the time in commerce, and staff learn about the negotiations."

Morden prefers to meet employees of a show company Southex is about to acquire early on in the negotiation process. "The only thing you're really buying is goodwill and the employees," she says. "So, as soon as possible we like to chat with employees and let them know who Southex is, and what kind of people we are to work with."

Morden recalls one show owner who introduced her to his entire staff while both organizations were still in the very early stages of due diligence. "Assuming we are still at the preliminary due diligence stage, we do not have the right to talk to a show producer, PR or advertising agency staff," she says. "Once a letter of intent has been signed, we ask the seller for the right to speak to internal staff and outside contractors."

Because Southex spends a great deal of time on the people side, Morden says the company has not lost anyone they've really wanted to retain through an acquisition. "We are pretty clear up-front about the future role an individual will have with Southex and then work hard to blend them in to our organization to the extent that makes good business sense," she says. "We are not the kind of organization which says, 'Up until now you've done everything wrong. Here's the Southex way of doing things.' We've assumed that we're buying something that works; so, we spend a lot of time nurturing the people who can continue to make it work."

When Z-D Expos was about to be sold to Softbank, Lohse made a short speech to his staff: "Although we hear countless stories about the rapacious capitalists taking everything to its lowest common denominator to get the fastest ROI, we have to assume that the company buying Z-D wants to play for the long-term," he recalls. "We told our people to give the acquiring company, whoever they might be, the benefit of the doubt and at least see who they are. I reminded our people that we have a valuable company, valuable shows and valuable customers."

When the deal is done
Once an acquisition deal is done, Lohse says it is important that the new owners get all the employees together for Town Hall-type meetings, group meetings with executives and anyone else the new owners are worried might leave. "Savvy owners of the acquiring company will want to commit the time to build the network so the assets they just acquired -- the people -- don't walk out the door," he says.

When the Letter of Intent is signed, who makes the announcement? Oppenheimer recommends that owners immediately tell their staff what's happening. "We advise show principals to be honest, upbeat and very positive, as this is a very delicate period, particularly since many show owners have been close to their key employees for a long time and will want to see that they're taken care of," he says.

At the end of the day, when you tally up past profits, future potential and human resource assets, how much will you actually walk away with? On this Ullo, Morden, and Birkfeld are unanimous: only as much as the buyer was willing to pay.