How to Prepare a Business for Private Equity Acquisition

Intro

Joining me today is Philip Soar, Chairman and CEO of CloserStill group, one of the UKs largest trade show businesses. Today we're going to talk about the process of preparing a business for private equity acquisition.

Can we kick things off with a little bit of background on yourself, particularly your M&A background? 

I've been in the media trade shows on and off for about 40 years.

I've run some large media groups over here in Europe, in Germany, Italy and  Japan. And I moved into trade shows to know very much about trade shows to tell you the truth, but it's a very, very interesting sector. 

And it's a very little known sector, it's a real under the radar sector. So I've been CEO of two, three of the largest trade show businesses in the world actually, over the last 20, 25 years. 

How early did you start acquiring other businesses? 

Almost immediately. If you go back to 1990 or thereabouts or the one that we publicly quoted trade show companies. 

Most trade shows are owned by associations and indeed in the states, most trade shows are still owned by associations, which made them even more under the radar.

But tradeshow groups which grew up were basically financial engineering. At that time it was possible to acquire very, very good trade show properties, very solid properties that have existed for maybe 50 years for three or four times earnings. 

Where at the time if you wanted to pay for a good magazine group for a newspaper group, you might pay 20 times.

And if you like, I'll tell you a story. One of my favorite cameos, 1989, my company bought a trade show called Batimat, which was French. It's the largest trade show in France and usually has about 600,000 attendees. 

Enormous it's in the building trade Batimat. That means a building trade. We paid about $8 million for it. And we bought it three and a half times, even though that was 1989. 

In '89, Walter Annenberg sold a TV guide. That's the TV guide you see at the supermarket checkout for $3.7 billion, which is the highest price ever paid for a magazine before all of a sudden $3.7 billion. 

Now rolling on just 19 years to 2008 and Batimat which has expanded quite successfully and it also would move into Russia or one or two other markets that were valued at that time at around 400 million, the show itself was $400 million. 

So it had gone from about $8 million to $400 million in that 19 year period. And the same year TV guide was sold to a private equity house in California for $9 million. Otherwise it had gone from 3.7 billion to $9 million. 

And that in a nutshell tells you a great deal about trade shows and what happened to trade shows in that period and what had happened since. In other words, they were unknown, and they were massively undervalued relative to other media assets and it turned on its head.

And by 2012, apart from the obvious WebLink services, trade shows were commanding the highest prices of any media form. The companies that got in early, when you could buy for three and a half or four times, we're doing very, very well by that point. 

Has that changed, do you see multipliers go up since then? 

Ignoring the last 15 months, you know, because we don't really know what's going to happen. As we move out of COVID. The multiples were doing very well in 2019. That's the last deal I did was in the beginning of 2019, quite a big show, 17 times. And there are quite a few deals. 

In Europe and the US at about 15, 16 times in 2018, 2019, a lot of quite big deals and decent large properties, that was the kind of number. And you compare that with the multiples you'd get for most other media forms and it remains pretty high. 

Your primary strategy is consolidation. What do you typically look for in a company? 

You look for stability. Obviously, you do. There are really three reasons why people invest in trade shows. I often have these kinds of conversations.

And one of the questions is why is private equity so interested in trade shows and exhibitions? And I think the answer is not why are they so interested? But why did it take so long for them to become interested? 

Because all of the truths about trade shows, which over 30 years ago or through 40 years ago. And there are three principle elements why trade shows have become a very attractive investment. 

1. The margins are very high. Well-run business will be generating 27, 28, 29, 30% margins year on year.
2. The cash comes in up front. It's a bit like insurance floats, exhibitors pay you in advance. So you're taking the money in advance and you pay the costs of running the exhibition at the time you run them. So you've got advance cash flow. That's very important. 
3. A good solid trade show. We'll be able to rebook all its exhibitors for the next event. So if you're running annually, if you're running by any really high every two years. 

At the show, you talk to your exhibitors, you ask them if they want to come back next time. Do they want the same slots on the floor? 

A well-run show we'll get 80 or 90% of people say, yep, sign me up and we'll sign the contract on the spot. So you have that continuous certainty of a very good show. 

4. Classic Warren Buffett, I like businesses you can build a motor around. And trade shows fulfill that very well. Because now I'm speaking here worldwide. If anything is slightly less true in the US than most other markets in the world. 

If you've got a slot, let's just say security, if you've got a slot in a venue for a security show and that's well-established, and you have a good relationship with the people that own the venue, then they will not allow another security show into their venue.

Most big markets in the world, there are probably only two major venues. So with that relationship, with that slot, you've actually got control of the marketplace because other people cannot come in and compete with you. 

It's less throughout the states of course, because there are far, far more convention centers in the US but it is also the case that out of the 25 biggest shows in the States, I think 21 run any of the Vegas or Orlando and broadly the same thing applies.

It's very hard to compete in Vegas against an established show. Because the show is there people rebook for it. And the venues are very cherry about allowing too much competition. So you build a moat around your business as well. 

It's not unlike airlines at major airports. Heathrow in London tends to be the major example. British Airways open 50% of the slots at Heathrow. There aren't any more slots because the airport's completely full. 

British Airways have been consistently one of the most profitable companies in the aviation world for at least 30 years. 

And that isn't because their service is great or their planes are better, they're not a bad airline, but they're not exceptional.

The reason they're so profitable is they own 50% of the slots at Heathrow. One of the major airports in the world, and nobody else can buy those lots from them. 

There's a similarity there: you take those four things together and they're a very attractive business for private equity. 

Barriers to entry are very high. You can sit around and say, I think I've got a great idea, or I want to do this. I want to do that. I've got a great idea for a show in the sector and you go onto the Javits and say, we want to relaunch this show.

When can we have a slot? And they'll say, well, you can't really, we've already got somebody who does that kind of thing. And we're quite happy about that. Thank you very much. Go somewhere else 

On the platforms you've been involved in, do you launch new shows? Do you identify any sort of market?

All the time. But of course you launch into where you know there's a gap. If you're in particular marketplaces where 50% of our turnover is in medical and health care. Therefore, you're very aware of medical and health care. 

And also medical and health can move quickly, which means you've got new opportunities for new ideas and you're watching out what's happening and you see a gap, you see a hole and you move into it.

You can't go head to head against the American Association of Oncologists or the American Association of Physiotherapists. There's no way you can go head to head there, but there are plenty of other opportunities for coming events.

For instance, a lot of people are launching vaccination events of which historically they've been very few, but now of course it's a pretty sexy subject.

What's your approach to sourcing M&A opportunities? 

It's very broad. I'll give you an example. Let's talk about the US because that's where you are. We have three people in the state to do nothing else, but look for opportunities. 

And only last week, we had a very long half day discussion of the board looking at a list of 200 possible opportunities. 

In other words, we give people certain parameters, a business has to be a certain size. It has to be in certain sectors, etc.

And we ask our people over there to go out and talk to literally anybody they can think of. And come back to us with a list of possibilities. 

Now we're not going to go and talk to 200 people and make them offers, of course. But by doing that where we're attempting to filter them down. We're attempting to pull them into a funnel and perhaps break that down. 

If we can break that down to 52 possibilities that we think of, and that's what we will do. We will actually knock on 52 doors. 

Most people will say, well, thank you for the call, but no, we're not interested in selling, but you have to kiss many frogs, etc. and that's basically how we do it. 

There are obviously the brokers, as they are in old industries who will bring us anything that they have been commissioned to sell. So clearly when that happens, we look at all those opportunities. 

They go into the hopper as well. But over the last 18 months, they've been very few of those.

In the past 20 years. How has that approach evolved? Were you always utilizing resources to do the scouting for you?  

If you go back 20, 25 years, this is a very unconsolidated industry. I mean the two biggest players in the industry one's called Reed Elsevier. 

One's called Informer, they've happened to be based in London, but actually very little of their businesses are in the United Kingdom, they're worldwide.

And they each have about 4% of worldwide trade show business. That's the sum total of consolidation. There is nobody who has more than about 4% of the industry. 

And if you go back 20, 25 years, the two biggest businesses then were one called Reid and one called Blend on which I was chief executive op.

And they each had about one and a half percent. So it was almost totally an unconsolidated business and little by little, it consolidated more. 

But even so you can take out the big players, you look at the big German mess up because the German holes tend to own all the exhibitions, running, run holes. They tend to own them themselves. 

And again, it probably doesn't account for more than 20% of the industry worldwide, but a lot of medium-sized companies have been hoovered up in that 20 year period, but again about 80% of the industry worldwide is still independent. 

Can you walk me through that when you started seeing private equity interest in this industry and  what did that look like? What do those conversations look like? 

It wasn't until around 1999. Warburg Pincus who were interested in tech, that was the buildup to the twothousand.com crash. 

And there was a great deal of interest in tech investment, generally from the PE house. Of course, PE world's very different in 2021 from the way it was in 1999.

But Warburg Pincus were a relatively big player at that time. And they've invested quite heavily in tech. And as a result, they had come across a series of reasonably large tech events in the States and their interest in tech led them into those investments. 

That was the first one of any size that I noticed. The first one that I did was in 2000 was in fact for a large event show interestingly. 

But even then we were talking about eight times earnings so that it was a very good show. It was very hard work explaining the industry. 

Everyone in the financial community found it very hard to get their heads around the fact that the Javits doesn't own the shows that run in the Javits or the McCormick center in Chicago doesn't own the shows that run in the McCormick center. 

Somebody else owns them. It's not that difficult to conceptualize. It's like a printer doesn't own the magazines that our principal has printing machines.  

It was quite difficult to get over what the IP really is. What is the IP in a trade show, it's not like vogue, it's not like the columnist.

It's not like that kind of IP and a trade show, it looks like a trade show. I mean, you don't go into a trade chat and say, Hey, this is just completely different from any other trade show I've been to. 

So the IP is somewhat diffused. It took quite a long time to point out actually how solid these properties were.

And of course you can go around in circles, you go around and chickens and eggs, which is again, one of the conversations I had often was, well, if they're so attractive, why haven't private equity invested in them already? It's a classic. 

You can be walking along fifth avenue and you see a hundred dollar bill on the floor in front of you. And you say to a friend, look, there's a hundred dollar bill in front of me. And he says, no, there isn't. 

That can't be, because if there was a hundred dollar bill, somebody would have picked it up by now. And so we had that issue for quite a long time. And then a little bit by little bit in the early two thousands, there wasn't interest at a relatively low level. 

By about 2010 so there were serious investments, serious numbers coming through. And now if you take the UK in the 15 months prior to COVID, there were six deals in London which were aggregate three and a half billion sterling. 

So the numbers now are really quite significant. 

So at the current firm, when did you start seeing private equity starting to approach you? What do those conversations look like? 

So the current one, they're permanent, they don't go away. There wasn't a period where people didn't approach. You've got approaches all the time. 

But there is a regular flow of people that will know in the industry or intermediary is saying, I've really got somebody who really wants to invest. Have you considered, is it time to talk? 

And even if it's not time to talk, can we at least come and have a chat and see what's happening, but that never goes away. That's pretty well permanent now because we are a fixture on the private equity calendar and the project, in the playbook.

What makes a company attractive for a PE firm? 

As we said earlier, very high margins, consistently high margins as well at the margins. Don't go away. And the reason the margins don't go away. It's very Darwinian because you've got the moat around you because you've got the barriers to entry. 

You can sustain the margins. I'll use the British airways analogy, Heathrow again, 50% of the slots, and there are no slots left over. There aren't any other slots to be given to anybody. 

If there were 10 runways within 40 miles of Heathrow then British Airways would probably be bankrupt because there would be lots of places for lots and lots of other airlines to land their planes and take off. 

So it comes down to exactly the same thing, UK, France, Italy, Poland, Spain, not true in the US there are only two venues of any size. So if you've got a show and  what are those venues? And the venue is not going to let anybody else come in and compete with you. 

And that you've really built a very solid wall around yourself, barriers to entry, et cetera. That's why it's an attractive industry. 

It isn't obvious. If I talk to people who don't know anything about the trade show industry, but I say, okay, let's start, what are the value drivers? 

You tell me what the value drivers are like while you're sitting here. And you're saying you're interested. If people don't know very much about it, they virtually never talk about the barriers to entry and the slots. 

It's one of those things like a lot of industries, unless you're inside it, you don't actually know what matters.

What are you looking for in a PE partnership? 

What are we looking for? I'm still gonna say isn't it because you don't ever talk to a complete PE firm, do you? You talk to representatives, you talk to maybe one member of the investment committee. 

More likely at first meetings you talk to a vice president or a managing director whose job is to scout media opportunities, et cetera. But it's inevitable that you respond to the individuals. I would like to say that wasn't the case, but it is the case. 

You have those kinds of conversations that you'd like the sounds off, and maybe you continue with those conversations. 

Other organizations, I won't name any. Actually, but some of the bigger ones, you actually have a couple of meetings and you think I really don't want to work with these people, a little bit too much arrogance, a little bit too much.

We are all pretty big and you should be pleased I'm here and talking to you and you don’t pursue those. That's always the starting point. It helps if it's a private equity house or venture capital house that has had some experience in your sector, that helps a lot. 

When these firms are reaching out, are you taking all the meetings or do you ever look at a firm? Look at their website and said, nah, I don't want to talk to them. Is it sort of? 

No, we very often don't talk to people, but I have to say the website doesn't tell you anything. You are talking about private equity, a lot about private equity. You give me a hundred private equity websites and tell me to find distinctive points.

Every single private equity website basically says the same thing. We're warm, we're cuddly, we're friendly. We're very supportive. We're great supporters with acquisitions. We can help you with this. We can help you with that. We've got a great track record. 

They're all the same. Sorry. I mean, that's a bit unkind. Of course. They're not all exactly the same, but I think you know the point I'm making. 

So what actually prompts you to take the call? 

I haven't done it for quite a long time. I know most of the names, occasionally you'll get one that you don't know and you might well take a call from somebody you don't know, just because you've never heard of them before. 

But you tend to know the firms and you tend to know the individual because obviously we work mainly in the London and New York markets.

The individuals don't change very much, to be honest. It's reasonably stable. I'm talking to people now about a couple of deals, not the main company CloserStill, people that I was talking with 20 years ago about deals. 

Is there anything else that gets your attention with getting a sense of who to talk to with the PE firm's interests? 

No, it's difficult to say there's anything else it's opportunistic isn't it? It's not unlike when we're out searching for acquisitions. 

In an ideal world, I would say to my people we want medical shows, we want healthcare shows. Our other strong sectors are e-commerce and e-learning. 

So only look at those sectors, but actually we don't say that because you have to be opportunistic because something may come to your attention in a sector, which you haven't defined. Let's say security is quite a good example and it's well worth looking at. 

So it's best not to go in with a recipe and to refuse to move off the recipe. And the same is true to an extent of private equity companies. We're in a slightly different world. It's not only private equity now. We get approaches from very different organizations.

We've had quite a few approaches from family offices, for instance. Oh, we're looking for long-term investments on one occasion from one of the university foundations and SPACs for instance. And we've got a couple of calls from SPACs in the last six months. 

It's not just a private equity issue anymore. There are other funding vehicles, which one has to be aware of and has to pay attention to. 

How do you assess different approaches that the PE funds would have when they're coming out with these different strategies via growth buyout, and sort of align that with your interests. How do you start preparing your company to actually do the transaction with them? 

There are certain things which are obvious. I've never talked to a private equity investor in 20 years, who wasn't basically about buy and build, you almost start there. You have to get that out in the open, straight away. 

We're buying you but then once we bought you, what we want to do is make more and more acquisitions and you will be a platform for X, Y, and Z. 

That's what everybody wants, but it's quite important. It's sort of teasing that out a little bit. What do you mean by that? Okay. If this is a 500 million deal, are you talking about it? Buy and build to a billion or 2 billion or whatever else that's important. 

The other thing of course is the length of the fund, which is blinding the obvious. I know that it's almost blindingly obvious, you don't say it, but we all know that most of the funds have a five, six, seven, eight year life cycle. 

You need to know very, very early on what funds they're thinking of putting you in and what is the lifecycle of that fund? Because that's extremely important. 

If it's a five-year fund and they're two years in then then of course it isn't an absolute truth because funds can sell assets from fund to fund of course they can. 

But actually that gives you a time horizon and it gives you a time horizon for the people who are trying to invest in you. 

And you have to take a view on whether you think a maximum of three years is really sensible for what you're trying to do and where you believe your marketplace is.

If for instance, you've just launched three or four big shows and you're spending a lot of money on them and you're trying to develop them. 

You don't want to be in a position where somebody is saying we'd like to sell you in two years' time, because it's a marathon, not a sprint, big shows take maybe four or five years to develop into a size that's worthwhile.

You don't want to be selling them after two years when in effect they're not producing any profit and you're still investing in them. Again, the biggest company is actually an eight year fund and we were the first investment. 

And that's absolutely ideal because you want as long a runway as you can get. It doesn't mean it's eight years before there's another transaction, but it doesn't mean you've got a nice long runway which gives you plenty of time to plan. 

When you sell a company, you'll hire an investment bank to run a competitive process. When you're on this side of the table and you're getting interest from several PE firms, are you doing something similar to create a competitive process?

It depends. The vast majority of private equity deals are not walk away deals. Clearly, if a group of people are selling a business, it’s a walk away. In other words, thank you very much. We'll bank the check and we'll never see you again. 

Or then clearly what you're looking for is the person that's going to pay the highest price, but I don't think I'd ever seen one of those deals. I've never been involved in a deal like that. 

Again, I'm talking about private equity. SPACs may view it differently, but buy in large the deal is, we liked the company. We liked the company because we liked the management. 

Therefore the dealer's management stays on under whatever terms are agreed. Two years, three years, whatever else. 

You start with that and therefore it's absolutely fundamental to be working with people you trust and you like quite honestly, I know that's dangerous. 

That's on the buy side right? 

Well, that's on the sell side on the basis that we're selling an entity, but the buyer is effectively saying to us, you sell to us, but we want you guys to stay on.

So, you're looking all the time for people that you feel you think you're going to be comfortable working with. No, it's easy to say that, but of course, everybody puts their best foot forward, whether you're buying or selling of course. 

When you've done your makeup and you've put your lipstick on and everybody's putting their best foot forward you have to be a bit cautious there.

And of course, it's also true that you can buy into a private equity house. You can blind a couple of guys, girls and then find they leave the business two years later. Of course that can happen, but within reason. It's very important to actually work with people you like, you trust and you've got a good reputation. 

The first thing you do when you start getting serious with somebody, as you bring up everybody, when you can sync up with whoever dealt with them before and ask, and you ask the question, you've worked with Fred, he bought you, he sold you.

What do you think? Tell me honestly, and you do a lot of research on that. You should do a lot of research 

Over a company lifetime there's a lot of things that happen.Down the road fund comes up, it gets sold to another fund. And so it's sort of like, there are several different types of events that happen. Can you maybe walk me through some experience around that or maybe lessons learned? 

To be honest, I suppose I have done at one way or another about 15 deals, which involve private equity or venture capital over the past 20 years.

One or two of them, not that many, but a few of them have been a sell-out to large corporations. And even with large corporations, they often want the management to stay. 

But if you want to get out of a large corporation it is a better deal than a private equity even if the cash offer is less because you'll have an opportunity to exit. If that's the case. 

Clearly, if you're doing it with a Private Equity, a company you will be locked in. It'll be very difficult to leave unless it's by mutual agreement. There's a great deal of variation. One deal which we did with CloserStill was a minority deal, which was extremely interesting.

And the private equity company only took 47% and we retained 53%. And that had a very different dynamic to it because we really did continue controlling the business. 

And while they were the largest shareholder, they were very careful about not in any way imposing on the business, they made it one of the appeals of the deal that you guys will still own the majority.

Therefore you will be able to make the decisions. We cannot impose decisions on you. Now, of course, that's not an absolute truth. 

There are certain circumstances if numbers were going the wrong way, then of course they could have imposed themselves as the largest shareholder. 

But that was quite an interesting one. And I think we're seeing a bit more of that. We're seeing a bit more minority deals.

What drives a PE firm to go that direction. It's interesting because typically you assume that they'd want the board seats and to really have some influence in the company and try to make changes? 

It's a wall of money argument, isn't it? As we all know, private equity venture capital is in possession of far more funds than they can possibly dispense. 

And probably the single biggest problem at this point for private equity broadly is how they actually find targets for the funds they've got. It's actually quite attractive.

If you're prepared to go along to organizations and you're not paying any more money than anybody else's paying, you've got something a bit special. 

You've got an argument that nobody else is using. You're actually saying, okay, it's all the same, really.  If you'd like the total value and enterprise value of the business is the same.

But what we're offering you is something that you might find very attractive, which is that you still retain the majority. And I think that's the reason for it. It allows a private equity firm that's offering that  a bit of leverage. 

It allows them to tell a different story. And that was certainly true in the case I'm talking about. It really did make the difference. 

It's not always attractive, but for a lot of people you think to yourself that sounds attractive or they're offering a bit less money, but actually if we really can keep a lot more control, we like that.

So on these 15 deals, you mentioned you had two that were complete buyouts from strategics, walked through this minority or some other types of transactions that you worked on? Are they typically a growth investment than other terms pretty typical?

They're very much a growth investment. I don't ever recall talking seriously to anybody who didn't want to basically buy as a platform and invest once they bought into you. They have to find a home for their funds. 

They have to find a home for the money in the bank. And if they buy into a sector, they like with people that they like, they want those people then to come out on acquire, acquire, acquire.

So in that sense, every deal is like that. I can't recall being approached on the basis that it wasn't a platform, that it wasn't to buy and build. 

We're no different from anybody else. There will inevitably be a rollover stake, which is calculated by a very complex mechanism where we have specialists who do that for us.

And of course there is X percent of sweet equity, 20, 25%, which if you like is given to the management to dispense as they wish. 

In the case of CloserStill, my biggest company, every single employee is a shareholder and I don't mean share options or shareholder. So what we do is we distribute it right across the whole company.

What are your techniques to cultivate relationships with PE firms? 

We don't actively ring anybody up and say, would you be interested in buying us. Clearly, when it comes to a transaction we might employ somebody like Goldman's to actually act on our behalf. 

And that's very straightforward, because they can ring almost everybody under the sun and ask if they're interested, but I don't actively approach private equity firms. 

We did in the early days, when businesses were smaller, we would actually approach a number of people and say, might you be interested in investing in trade shows? 

And then if you like, Yeah, I'm interested in trade shows and then say, okay, these are the assets we've got at the moment. And can we start with that? And then we'll build on the back of that. 

And that's how a couple of the early ones started. And these were in the days when trade shows were not flavor of the month and were not particularly exciting. 

And that required quite a bit of slogging around, but with smaller houses, boutiques really, boutique space to Mayfair in London and to an extent in New York. 

When you need more money, do you just go back to your current partners? 

It's all prearranged in the deals. In other words, you're assuming buy and build, and you have to assume that we will be buying and building. Therefore you have already built into the protocols and the shareholders agreements.

What will happen if 50 million is required to do X, Y, and Z. And if a hundred million is required to do X, Y, and Z, this is how it will happen. This is how much it will be loan loads. This is how much will be preferred shares. 

This is how much could be equity. This is the maximum dilution that could occur in each of these situations, et cetera, et cetera. This is 200 pages of boilerplate, frankly, but it's obviously important. 

I've also never seen a deal where the management didn't have a right of veto. In other words, you can't really be in a position where a private equity house has a majority holding product. The house says we really want to buy this. 

And we insist on buying it without the management being able to beat us over which is sensible because if the management really doesn't want to do a deal, then it would be a bit foolish to put that deal into their hands.

What are our metrics of success? Or what benchmarks do they have? It's just to measure progress through the investments. 

Yes. They will have the absolute standard. They want a rate of return of X over a certain number of years, but of course you are in a business where you've gone in, and you're assuming a five-year timescale between acquisition and next exit. 

What would you typically do in a buy and build? And it doesn't just apply to trade shows. It applies to lots and lots of other businesses. The first two years that's the period where you will be looking very hard for the acquisitions. 

And you will also be looking very hard for launches. And as I said earlier, launches are better than acquisitions, as big launches cost far less cash, but they take time. 

A good launch in a good sector, which has got good prospects will take three, four, probably five years before it gets to the point where you're really happy. But this is a valuable business. And the EBITDA is of a level justifies the investment and makes it valuable. 

So you do that right at the spot and by the time you get to year three and year four year five, you don't do that. 

And the reason you don't do that is because you don't get any value for the fact that you've just launched three fabulous shows and they're going to be tremendously valuable in five years time.

Mr. Buyer says, that's fine. Thank you very much. Great. And it's proved, but we give you no value for that. So you're using up our assets. You're using your best people to develop things which will actually bring no value to you in terms of a deal. 

And the same is true of acquisitions. You make acquisitions sometimes on the basis that they're in a steady state and you'd like them, and they're not going to grow very much. 

But most of the time you buy things that you can see you've got advantage because you can grow them, learn the sector you like, so that all might be a million in the first year, but you would hope after three, four years, you've built that up to 2 million. 

And so you try and do all of that in year one and two. That's a very interesting dynamic, which actually I was addressing at a conference in London this morning about exactly that. 

It's a very interesting dynamic because you can go back 25 years to the 1990s, the big exhibition groups, people like Reed Elsevier in the form of Plenum, one or two in the states were just normal companies.

They were just running all the basis of where we are and next year we hope that our earnings per share will have risen by another 6% and our headline profits for the reason by another 8%. 

Will we make another acquisition and we're running a business and we're running a business. You may be running this business for 20 years, but you didn't have a time scale. And now the trade show business has become very tied into the private equity cycle. 

In other words, so many of the big businesses, all private equity or acquirers like private equity, one way or the other or hope to sell themselves to private equity. 

Then they follow the private equity of doing exactly the kind of things I was talking about. And it does make quite a difference to the dynamics of how the industry works. 

When we look at some of the financial metrics to measure success and acquisitions, how do you keep from purely making it acquisition of revenue, just to hit those targets and still be aligned on doing quality deals and balancing it out between the two?

It's very difficult. You can only acquire what you can acquire, like a lot of industries. I can very easily say, look, I've got 10 events, which are absolutely perfect for us. 

I would really like this diabetes show in Cleveland. And I would really like this e-learning show, which is fabulous in Singapore. Because they fit perfectly with our product, with our people, etc.

But just by writing it down, you can't make it happen because you can't force people to sell. And very likely the shows you like are owned by somebody who's in the same situation as you were and we've never sold a show ever. We never dispose of shows.

If somebody came along with a really ridiculous offer, of course we wouldn't turn it down. But we don't sell shows because there's no benefit to us. Those are southern shows. 

We’re trying to build EBITDA and we're trying to build a business that will be as valuable as it can be in five years, six years time, or whenever else.

I know a lot of people are in the same position, so you can only buy what you can buy, which has always made it a very opportunistic business.

Those aren't really an answer to that question. You can see your eyes with your private equity partners and say, we want to buy $10 million worth of EBITDA this year. And we don't want to pay more than eight times. 

And we want it to be in the sectors that we want to be in. But if the events are not there, they're not there and you can't do it. 

Can we talk about negotiating these deals with PE firms? 

You put your lipstick on and you put your best foot forward and you're very honest because you don't want anything coming out and due diligence, which would cause to say, hold on a minute, they didn't tell us that. 

Although, of course, when you're buying, particularly when you're buying owner driver events, something that happens all the time. 

Of course you actually say you mean, you didn't tell us that you didn't own the property. You mean you only rent it, all sorts of stuff it comes out.

But when you're being serious about the size, we are, you're very honest, you're very straightforward. Your numbers are  very accurate. KPIs are very important as we all know, private equity loves a good spreadsheet. 

And therefore, when you have enormous spreadsheets full of KPIs, anything that anybody would like to analyze. I'll just give one  very simple example. Average revenue per square meter exhibitions, always sold on square meters. 

Exactly the same as magazines are sold by page number. What is the page rate? How much money is the magazine getting for every page of advertising itself? Or if you're in the hotel trade, what's the revenue per room nights.

And so average revenue per square meter is absolutely critical. You get a massive information. Every single show we run it's complete history. 

What the average revenue per square meter has been over 10 years, assuming we've got it 10 years analyzed down how it works, how much of that has come from price rises, how much of that has come from actual real growth? 

Does it come from exhibitors taking more space, same exhibitors, or does it come from new exhibitors? 

We have massive spreadsheets on that and the more and more information, analytical information like that you can provide for a private equity house buy in large, the happier they are.

It saves them a lot of work, but it also allows you to say to them, these are the things that matter in this business. And we spend a great deal of time on that. 

All of our systems are geared to analyzing that on a thousand other things in that kind of form. I think that's pretty important. 

Do you use that in negotiating? 

Depends on what else is going on, doesn't it? We always have intermediary issues you'd expect, and that's the intermediary role. 

And the intermediary role is clear, just like a football agent will attempt to push prices upwards, but it depends on what the competition has played.

If there are five interested parties, that's a lot easier than if there's only one interested party. The tough one is if there's only one interested party and how do you maximize the price in that situation? 

How's it been when the market goes upside down on you and all these plans and expectations? 

You mean now, March last year, it's not been too bad, actually. We're very much at the sharp end. And obviously we run events around the world and eight, nine, 10 different countries. 

One of the good things that's happened and surprise is of course, you go back to your exhibitors and your delegates, and you say, look, we can't run the show.

We don't have a better run until next year, do you mind just rolling over? We keep the floor plan the same, we'll run it again hopefully in a year's time and will you leave your money with us? And will you come back next year? 

We started off thinking so it's a bit like the airlines. Oh they're going to have their money back. We started off by thinking we might have to hand about 50% of everything that had been paid in advance back. 

And in fact, it's been less than 10%. We've been very encouraged by our exhibitors and our delegates, and we take a lot of money and the delegates have said no, I said, all right. Oh, you just put us down for the next time. You don't need to send the money back. 

We'd be quite surprised actually. And that's very encouraging because it means they will come back and fingers crossed by the end of the year that should follow through. 

Of course, the fact that somebody paid last year and they're prepared to roll over, you still end up with a situation where you don't get you.

Haven't got twice the amount of money. You only get the money once. So there are plenty of cash flow issues, but we've been able to handle the cash flow issues. We have not had to have great rounds of redundancy or anything like that. 

It sounds like everybody's had a level of flexibility between this? 

Went very lucky with the help of a private equity company, which in this case is Providence who were incredibly good. Didn't come back and say, well, come on, you've got to start making your people redundant. 

You've got to cut headcount and all that kind of stuff, but didn't know any of that at all. We were unusual. We said right from the start of March last year that we did not expect to run shows till the final quarter of this year, which was unusual.

I think we were the only big exhibition company, certainly in England, that did that. Most people thought, oh, it'll be six months. It'll be nine months. We said, no, it'll be 18 months. And we did all our cash flows on that basis. 

And that was helpful because it helps your credibility with your private equity partner to say, okay, we're talking, I won't say worst case, but we're taking a really relatively pessimistic view and this is what we're going to do about it.

And we did all the obvious things.  Everybody took 25%, 30% salary cuts. The directors took 50% salary cuts, all the kinds of stuff you'd expect. 

What's the craziest thing you've seen in M&A?

I've had quite a few publishing companies over the years as well. And one of the biggest, I happened to be in Paris. 

It was a magazine publishing company which published pretty well every market in Europe and really all the work was done in London, but it so happened that it was a French domicile business.

This was 2010, 2011 when we did this deal, quite a big deal, it was 50 million euros in the end. And all private equity companies, all venture capital companies. They've got certain parameters that they work through. 

In other words, we really only want to be in certain sectors or probably more accurately. We don't want to be in certain sectors.

We don't want to be in retail or we don't want to go. So they only work in certain sectors and they work to a certain size. In other words, we're interested in deals between 0 and 50 or 50 or a hundred to 200. And that's our sweet spot. And that's what we focus on. 

That's the only time I've done a project you deal in front of. I’ve done one  in Germany. And a lot of the European, private equity based companies, have got a national bias and quite a lot of the French, the bigger French ones. 

Actually part of the basis on which they've raised funds from French pension funds and the big French banks is that they invest only in French companies. 

This was quite common. I didn't know this before 2010, and we only found it out during this process. And quite a lot of the big companies I restructured in this way. 

Well, if you go back to 2010 and the way that the market crashed in 2008, 2009 affected Europe. In the kind of hundred million, 200 million range, this is Euro there would be very few deals. 

You've got quite a few private equity companies looking around. It had to be French domiciled and it's in the range of hundreds, 200 million. We had a good intermediary who was Rothschild. 

I think it was saying, well, actually this is really interesting because nothing of the size has come to market in the last six months.

So you will get a lot more interest than perhaps you would expect that's what happened. It was quite a good company, but  believe me, it wasn't an exceptional company for a whole raft of reasons.

And we got exactly that. We got four thumbs saying, look, we like it. We like it. We like it. But really what they were saying was we've got all this money. We got to spend it and there are no deals that hit our sweet spot. 

And your deal is exceptional because it hits our sweet spot and it's French normal salad. And we want to be in.And Rothschild, were able to conduct a very effective auction, which ended up as a sale with a number around 150 million euros.

And to be honest, that was not a sum of money that the house wanted to tell you, it was for the payment. They paid it because they had to get money out of the door and it fits the parameters and it was a French based company. 

Without boring you to tears, six years later, my two colleagues who are still the principals running the business, I wasn't, I was chairman bought it back for seven and a half million.

And the whole thing really, I'm not saying the deal should have been 50 or 60 or any other, a particular number. 

But the success of the deal from the point of view of other sellers was all about the fact that you had all these funds and they could only buy French domiciled companies. Very interesting lesson. 

Ending Credits

Thank you for taking the time to explore the world of M&A with our podcast. Please subscribe for more content conversations with industry leaders. If you like our podcast, please support us by leaving a five-star review and sharing it. 

I enjoy hearing feedback and connecting with our listeners. You can reach me by my email. It's kison@dealroom.net. M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. 

Additional educational content is available on Dealroom's blog at dealroom.net/blog. Thank you again for listening to M&A Science. See you next time.

Views and opinions expressed on M&A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.