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January 2001
Marquee Deals of 2000
Market forces converged last year to rock the industry with five deals worth nearly $2 billion
By Michael & Linda Kephart Flynn
The year 2000 was the show industry’s “Perfect Storm,” when forces collided to create a massive sea of unparalleled change. A strong economy, high profits, financial-buyer awareness and a surging interest in combining shows, publications and Internet properties into one integrated marketing power converged as never before.
It was a span that still has show producers and industry observers shaking their heads in amazement — and wondering what it heralds for the thousands of smaller event organizers throughout the country.
For Bob Krakoff, the “perfect” year saw his company, Advanstar Inc., sell for $900 million. That transaction alone accounted for half of the nearly $2 billion generated by only five of 2000’s biggest deals.
“This is still a very unconsolidated industry,” says Krakoff, Advanstar’s Chairman and CEO. “There’s lots of room for more merger-and-acquisition activity, but there’s no question that last year was a big one for a lot of companies.”
The biggest deals of 2000 offered something for everyone. Advanstar’s megasale, for example, involved an investment bank making its first major show-industry foray. The other four transactions included two international companies beefing up their stakes in U.S. media, a century-old publishing operation continuing its speedy transition into a show-strong entity and an impressive initial public offering that encompassed the country’s largest trade show. Each one, from an investor’s point of view, is a growth story.
“2000 was the most active year the industry has seen,” says Joel Novak, Managing Director of media merchant bank Veronis, Suhler & Associates. “The industry continues to grow at more than double the rate of the general economy. Trade shows are a highly profitable business with good cash flow, and I expect we’ll continue to see significant interest.”
This year, say industry experts, sales activity should remain high — although it’s unlikely to match 2000 levels. (See sidebar, Page 47) “We’ll probably see a lot of deals that fill in the portfolios of the integrated media companies,” says Bob Crosland, Managing Director of AdMedia Partners Inc., an investment banking and financial advisory firm specializing in media properties. “To build their spheres of influence, companies will look for strategic assets that complement what they already own. But a lot of significant companies changing hands in 2000 lessens the chance that they will move again any time soon.”
Before 2000’s high tide fades into memory, EXPO provides a look at five of the biggest waves to wash over the industry. If the details of these monsters make you feel like the captain of a diminutive fishing boat, don’t take it too hard. Most of the fleet is still bobbing in theirbackwash.
DLJ’s purchase of Advanstar Inc. and subsidiary Advanstar Communications was the show industry deal of 2000. The transaction witnessed one of the largest show and magazine companies in the business — with more than 100 events, 103 publications and 79 Web sites — change hands at roughly 10 times Advanstar’s pro forma cash flow.
“DLJ clearly thought the multiple was correct,” says Krakoff. “These are very astute financial people. If it wasn’t the right deal, they wouldn’t have done it.”
Hellman & Friedman (H&F) bought Advanstar from Goldman Sachs in 1996 for $237 million, the last major investment for one of its funds, which generally have a 10-year lifespan. Revenues climbed from $151 million that year to $356 million in ’99. H&F, which closed the fund in 2000, once considered taking Advanstar public but changed directions after similar deals traded too low.
Advanstar grew in the last four years by increasing the markets it serves to 19; pursuing new industries, such as fashion’s Magic show; looking for international opportunities; and adding an Internet component.
“The same things we did to make money under Hellman & Friedman are the same things we’ll do under DLJ,” Krakoff says. “It’s business as usual, except that instead of being part of a slightly more than $1 billion fund, we’re part of a $6 billion fund. Our firepower has grown considerably.”
Whether that means six times more clout behind whatever Advanstar tackles remains to be seen. “It could be,” says Krakoff. “They’ll look at every idea on its own merits, but we could bring that much more to the table.”
Advanstar formed subsidiary Hive4.com last year to develop B2B Internet portals, but Krakoff says more than 60 percent of revenues come from shows, and that won’t change soon.
The company will continue under present management, except for Executive Vice President of Business Development Skip Farber, who’s left the industry for now. “DLJ doesn’t run shows or magazines,” Krakoff says. “They buy good assets and give them the means to operate. They’re very hands off.”
The near future looks bright for Advanstar. “We made 28 acquisitions in four years for Hellman & Friedman and started more than a dozen shows and magazines,” says Krakoff. “I think we’ve got a long way to go, doing the same for DLJ. For them to put up the dough they did says what they think we’re capable of.”
Despite having London-based owners since 1985, Miller Freeman was a pillar of America’s show industry. With the sale of its assets to VNU of the Netherlands, however, the venerable Miller Freeman (MF) name has been retired.
In a $650 million deal, a multiple 11 times MF’s estimated 2000 EBITDA, VNU increased its percentage of revenues from U.S. business from 40 to 50 percent. The transaction included the former company’s sports and apparel, jewelry, gift and merchandise, real estate and construction, and travel units. MF’s 1999 revenues were $214 million.
“The acquisition allows us to extend our media deeper into several key markets,” says John Wickersham, President and CEO of New York-based VNU Business Media, the show division of U.S. subsidiary VNU Inc. “To further diversify our revenue streams and to add strength to our key media markets was too attractive to pass up.”
VNU edged out Penton Media, led by CEO Tom Kemp, a former MF executive. “We just paid what we thought was the price to secure a quality operation for us,” saysWickersham.
United News & Media (UN&M) did not offer VNU its CMP Media division, which it had acquired in May 1999 for $920 million and merged with MF. The company planned to keep CMP for an expected $12 billion merger with British television company Canton Communications, a deal that failed to materialize. UN&M sold Miller Freeman Europe to Reed Elsevier for $546 million.
In the United States, VNU operates 73 trade publications, such as Hollywood Reporter and Billboard, 35 trade shows, numerous conferences and seminars, and Nielsen Media Research.
The new owners closed MF’s San Francisco office,transferring central operations to VNU Business Media’s Manhattan headquarters. “To manage the expositions, a hybrid management structure has been created,” Wickersham says. “This hopefully allows our market focus to become even sharper, freeing up a few top executives to guide long-term strategies.”
About 100 employees worked in MF’s California office. Most were offered transfer options. MF President and CEO Don Pazour left the operation.
VNU folded all MF print media assets into Bill Communications, an earlier acquisition. In time, all publications and Web sites will work through VNU eMedia, now under development, for their electronic presence.
“The acquisition fits nicely into VNU’s plans to be a leader in business media, media measurement, and market data and research in the United States,” Wickersham says. “While I look for solid growth throughout the portfolio, the action sports segment, at this moment, has the best growth potential.”
Tom Kemp maintains his sense of perspective. As Penton’s CEO, he understands that his company made one of the largest show industry acquisitions in 2000, but realizes that most in the business haven’t even heard of the operation Penton acquired. “Most probably heard what we paid,” he says, “and in the next breath asked, ‘What in the heck is streaming media?’ ”
In fact, that’s a good indication of how involved Penton has become in high-tech, cutting-edge industries, including the Internet/broadband sector.
Streaming Media Inc. is the San Francisco show producer of Streaming Media East, Streaming Media West and Streaming Media Europe, as well as the Web site streaming media.com and Streaming Media Magazine. All focus on the process for transferring audio and video via the Internet so that users receive sound and images almost instantaneously in an even and uninterrupted stream.
“Streaming is the Internet’s killer application,” Kemp explains. “The ability to have real-time audio and video is key as the Internet continues to expand in business use.”
Penton would prefer to have developed Streaming Media’s portfolio itself, but found the target company already well established in the niche. Instead, Penton bought the group for a multiple “in the low teens” based on year 2000 expected EBITDA. “Our expectation, in the first full year that we run it, is that we will have paid less than 10 times EBITDA,” Kemp says. “The growth potential is what really attracted us.”
By next year, Penton will expand Streaming Media’s three shows to eight, with five as stand-alones and three co-located with existing Internet World events. Efficiencies will come from Penton’s ability to stage mega-events, its contracts with suppliers and its purchasing power in renting large venues.
Kemp expects to add staff to Streaming Media’s existing 25-member group as the business expands.
Streaming Media actually marks Penton’s third major purchase within about 30 days. The company also acquired Duke Communications International for $100 million and a contingent payment of $50 million, at a multiple “slightly in the double digits,” Kemp says. The purchase complements Penton’s existing IT sector, with six magazines and associated Web sites and e-mail newsletters for IT and finance professionals. Penton spent another $17 million, representing a multiple that was “under 10 and over 5,” for Professional Trade Shows Inc. That company operates 50 regional events for industrial markets, many of which Penton serves with its publications.
The three acquisitions were expected to increase Penton’s fourth-quarter 2000 revenues by $25 million. The publicly traded company withholds financial details of individual company components, but its total trade show and conference division revenues for the first nine months of 2000 were $96.1 million. “That’s about 40 percent of our revenues,” Kemp says, “and that’s a long way from 1996, when only about 2 percent of revenue came from shows. We’ve done well by diversifying.”
What better way to save the country’s largest trade show than to hire an expert ticket seller? The details are a bit more complicated than that, but choosing Fred Rosen — credited with turning Ticketmaster Corp. into a multibillion dollar company — as Chairman and CEO to take Key3Media public was among the smartest deals in 2000.
Key3Media produces COMDEX and NetWorld+Interop shows, along with a number of IT conferences and seminars. The company serves more than 6,000 exhibiting companies and 2 million attendees through 60 events in 18 countries.
Key3Media used to be called ZD Events. ZD stood for parent Ziff-Davis Inc., controlled by Japanese investment company Softbank Corp. Ziff-Davis was selling its assets to concentrate on Internet operations and came close to offering its show and events division to Leonard Green & Co. for $640 million. Shareholders, however, turned downthe deal.
Instead, Softbank decided to spin off Key3Media by taking it public. Softbank lured Rosen out of retirement
in March. “I saw COMDEX as ground zero for new technology,” Rosen says. “I thought if the show could be fixed, then the business could be fixed. Their other brandswere strong, too, but I thought they all needed a stronger hand.”
Through the spin-off deal, Ziff-Davis and its shareholders got cash in the form of a special dividend and stock in Key3Media. The “sponsored spin-off” delivered new investors and allowed the company to avoid excessive debt.
Rosen first expected to raise $25 or $30 million through the initial public offering (IPO). Instead, 11.5 million shares traded at $6 each, for a $70 million IPO. Today, 65 million shares of Key3Media are traded and, at press time, they were priced at 10 7/8. Combined with $400 million in existing debt, that gives Key3Media a stock-market value of more than $1 billion.
In his first nine months with the company, Rosen applied his trademark aggressive management style to reverse declining interest in COMDEX — which comprises close to 40 percent of revenues — and other key events. The latest flagship show, held in November, included more than 1 million net square feet of space, a 6-plus percent increase.
The show also included 400 new exhibitors, from Palm Inc. to Nortel Networks Corp., to draw visitors from outside the computer industry. Rosen and his team convinced the likes of Intel and Compaq to return and pulled in outside sponsors such as Mercedes Benz USA, for the first time.
The company’s 1999 revenues were $249 million. Rosen projected 2000’s final tally would be more than 11 percent higher. EBITDA also was expected to increase by nearly the same percentage to $98 million.
Besides its existing events, Rosen says he’ll grow Key3Media by adding shows to its portfolio. “We’re going to look at all shows; we won’t be confined to technology,” he says. “We’ll consider both new events and acquisitions. I don’t think 2001 is too soon to expect a new-show or acquisition announcement from us.”
“It was unique for a public company to buy a minority interest in ours,” says Jeff Little, President of George Little Management (GLM), one of the country’s largest privately held show management companies. But that wasn’t the only thing unusual about the deal that involved dmg world media, the exhibition division of a London-based multimedia company.
Little says GLM turned away suitors for years, unwilling to sell to venture capitalists looking for a quick turn-around or to parties without knowledge of GLM’s trade shows for consumer goods, ranging from giftwares to gourmet products. “This was the deal
we’ve been looking for,” he says, “and we’re a stronger company now than we were beforethe partnership.”
As part of the transaction, dmg, which operates gift shows in Canada and Los Angeles, now has two seats on GLM’s board. The newcomer will acquire another 26 percent in 2010 and can buy any remaining interest by 2014. The delayed acquisition allows Little and his five partners to continue running the business.
Both GLM and dmg are reluctant to discuss financial details of the arrangement. The parent company for dmg, though, estimates GLM’s EBITDA for the year ended Oct. 31, 2000, at $18.1 million. At face value, that would signal a purchase multiple of nearly 15.5 times cash flow.
However, as Mark Alcock, Deputy CEO for dmg explains, the multiple decreases due to certain contractual agreements, such as dmg’s receiving a preferred profit distribution of $1.5 million for the first five years.
“In general, you do pay higher multiples for higher quality businesses, and this certainly is one,” says Alcock. “I would expect that the multiple would still be in the double digits.”
Together, the GLM/dmg partnership includes a total of 26 gift shows in 12 North American cities. GLM will take over management of dmg’s shows in Los Angeles and in Edmonton, Montreal, Toronto and Vancouver, Canada, after the winter 2001 markets close.
In the meantime, GLM and dmg will concentrate on their newest effort, announced last November. It’s a gift and home industry alliance with Dallas Market Center, in which the three collectively invested $21 million in an Internet partnership called Whereoware (www.whereoware.com). The trio, representing an estimated 70 percent of the industry’s market share, plans to further develop commerce, content and commerce at and through the site.
“We thought we could work together in our online efforts,” says Alcock of GLM. “Then we decided we could work together off-line as well. Bringing dmg and GLM together makes a lot of sense for each of us and for our customers, too.”
Michael and Linda Kephart Flynn, regular EXPO contributors, think they recognize a good deal when they see one.
Each December, AdMedia Partners Inc., an investment banking and financial advisory firm specializing in media properties, surveys 800 media and financial executives to ask what they think aboutmerger-and-aquisition activity in the coming year. In 1997, 52 percent the survey respondents said they would urge buyers to acquire new properties. By 1998, the pro-buy crowd had expanded to 65 percent, and in 1999, 73 percent gave acquisitions a thumbs up.
That means nearly three-quarters of the executives correctly envisioned 2000 as the big year it turned out to be.
So far, the tally isn’t in for 2001. But no matter what the masses signal, AdMedia’s Managing Director, Bob Crosland, says 2001 will probably include a significant number of transactions, although nothing of the earth-shaking sort that occurred last year.
“Instead, we’ll see a lot of strategic add-ons,” Crosland says. “There are still some pockets of aggressive smaller companies that could be bought or sold. There’s no question that plenty of guys want to do deals. It all depends on how much product’s available and what the financial setting looks like.”
Financially speaking, the view blurs. Many expect the strong economy to at least relax, if not necessarily weaken. “Things have to take a breather once in a while, if only so they can surge back ahead again,” Crosland notes. “This year has the potential to be one of those breather times.”
Conversely, the Federal Reserve Board indicates that interest rates have probably leveled off and may even drop, making funds more readily available. Also significant is the great regard in which financial investors now hold media properties.
“The entrance of additional financial players in 2000 was a turning point in trade-show related acquisitions,” says Joel Novak, Managing Director of media merchant bank Veronis, Suhler & Associates. “The fact that these deals are attracting this kind of money will cause others to take notice. I think it will be a robust year for merger-and-acquisition activity, as long as the economy remains strong.”
Also shaping this year’s sales picture will be integrated media companies’ individual answers to the question: What mix of shows, publications and Internet properties will prove most profitable?
“Most will try to expand their show revenue because events usually grow faster and they’re generally more profitable,” Novak noted. “We’ll continue to see Internet growth, but its percentage of total revenue will still remain small. And the general shift we’ve seen over the last decade away from print advertising makes it clear that other marketing vehicles are being favored.”
“Ten times EBITDA.” Somebody forgot to put that one in the Exhibition Management 101 textbook. What’s all this talk about “EBITDA,” “cash flow” and “multiples” in today’s converging show industry?
These terms attempt to value a transaction when a company is bought and sold. “Cash flow” is the cash moving through a company during a set period, after taking out fixed expenses. Cash flow also is commonly defined as earnings before interest, taxes, depreciation and amortization(EBITDA).
Focus on EBITDA and you get a picture of the operating business itself, not its secondary costs or profits.
“In a private or public market acquisition, the price-to-cash-flow multiple is normally in the 6.0 to 7.0 range,” according to The Motley Fool, a popular syndicated newspaper column and Internet resource for individual investors. “When this multiple reaches the 8.0 or 9.0 range, the acquisition is normally considered to be expensive.”
Multiples also vary by and within industries. Trade shows, for instance, usually sell at higher multiples than consumer events.
In 1999, according to VS&A’s transaction database, significant show industry deals traded at a median multiple of slightly higher than 11 times EBITDA. The 2000 multiples remained high, as well. Stock in the Key3Media Group’s IPO, for example, first traded at about six times 1999’s EBITDA and now trades at about 10 times the company’s 2000 cash flow. The Advanstar deal rang up at 10 times pro forma cash flow, and the other three transactions featured in this story ranged from 11 times EBITDA to multiples in the low teens.
The problem with multiples, according to AdMedia’s Managing Director Bob Crosland, is that every transaction is subject to who’s involved and how they view the financial details of the company being sold.
“I haven’t had a deal in the last three years that from the seller’s point of view wasn’t in the double-digit multiples,” Crosland explains. “But I guarantee you that none of the buyers saw the multiples that high.”
Crosland says it’s rare to find a buyer willing to pay more than 10 times cash flow, particularly in a large transaction. A smaller deal, say for a highly desirable show management firm with a tightly defined market niche, might trade at a higher multiple. Then, however, the buyer brings concrete plans for immediately lowering that factor, through aggressive growth, massive cost reductions or some sort of strategic gain.
“It might look like 13 times to the seller, but nine times to the buyer,” Crosland says. “Every intelligent individual buyer — and certainly these large financial players — comes into the deal knowing exactly how the acquisition will work for them. That’s really the only thing that people outside the deal can know for certain.”
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