May 10, 2021

How M&A Will Revive Trade Shows [Contributor]

The international exhibitions market is slowly coming back to life after the 2020 standstill. Its been a huge shock for a global industry which had seemed to escape the digital disruption that has torn apart newspapers and magazines.

But what exactly is coming back? Will those digital events which have exploded during the pandemic blend into new live-digital hybrid trade shows? Will exhibitions simply resume their former scale and growth trajectory? Will the new wave, all-digital organisers continue to disrupt the industry even after the full-blooded return of live events and international travel? Will the recovery of events be constrained because – however much visitors and exhibitors once valued the real-life contact – some people have got used to life without them? Will the gradual resumption produce a succession of under-supported events that fail to match expectations?

Then there’s the broader change in a world where the pandemic has forced companies everywhere to try to support employees, customers, suppliers, communities and shareholders to an unprecedented extent: this is the era of multi-stakeholder responsibility – and Environmental, Social and Governance (ESG).

All the issues present a clear challenge for exhibition companies which are trying to believe that – given a transitional year or two – they will be back to their 2019 peak. Executives do not want to believe otherwise, and risk discouraging their awakening customers from re-booking exhibitions that need all the support they can get.

It is not enough to reflect on the reasons why exhibitions have been so successful the world over, because so much has changed. Many longtime citizens of Planet Trade Show risk being disappointed if they don’t respond to what has happened while they’ve been away, viz:

  • Digital events have exploded and have changed some expectations and appetites
  • Companies must rebuild balance sheets after 15 months of losses and financial fire-fighting
  • Attitudes to corporate travel, entertainment and hospitality have been changed by ESG concerns over climate, accessibility, diversity and corporate governance

Many trade shows, large and small, global and domestic, will quickly return to something like their former glory (and profitability). But ESG should still motivate even those organisers to digitalise their events to ensure easy, low-cost access for people who cannot or will not travel.

That calls for something more than ‘remote access’ to a conference linked to an exhibition; it requires tech to enable both online and in-person visitors to participate fully in events, interacting with exhibitors, sponsors and each other, exploring deals, and learning about their industry. That’s a tough agenda and has major implications for the economics of live events which have traditionally derived most of their revenue from exhibitors.

For Informa – which had spent some £5.6bn on acquisitions making it the world’s largest trade show organiser – there is the obvious dilemma for a listed company whose strategy once looked so strong. Those acquisitions have delivered an aggregate of only £1.5bn of profit across the last seven years. Informa now has an enterprise value (including £1.8bn debt) of £9.6bn – 25% down in little over a year. But, looking forward, it must now reconsider its strategy of separating conferences, training and networking events from exhibitions.

Given the digitalisation of exhibitions, a reversal of this strategy, along with the re-alignment of some of its data businesses, might enable Informa to put together some pace-setting combinations of events, information and membership in key verticals. This most data-savvy of exhibition companies has some exciting possibilities – if it dares.

For many trade shows, digitalisation is an introduction to the nightmare long suffered by their print media peers which have had to wrestle with the dilemma of how best to create ‘new’ products and services even when they risk competing for their own existing business: “How do we provide competitive digital services without deterring people from travelling to exhibitions?”

But the pay-back can be a new-style hybrid exhibition giving organisers paid-for information and networking services for visitors, year-round online relationships with customers, and closer involvement in the transactions that are the lifeblood of live events and the sweet spot in B2B relationships. This is the opportunity for trade show organisers to generate new revenues and also dominate the information, marketing, and education in whole market sectors populated by publishers, research specialists and data providers. There’s a lot to chase.

Like all strategic opportunities, it is also a threat. If trade show organisers decide not to change and, simply, to hope for a return to the world of 2019, they might just meet digital events coming from the other direction.

A startup called Hopin makes the point. This organiser of more than 50,000 digital events (so far) is less than two years old but has exploding revenues and a valuation of some $6bn. You can either see Hopin and a flock of other digital firms as the virtual equivalent of conferences. Or you can see that many of the companies which have traditionally exhibited to their customers in a trade show now have the option of bringing their customers – and perhaps even competitors too – together from their desks or homes. It will not, of course, replicate that real-life, ‘all the industry together’ in a busy venue but it could be cheaper, more convenient and perhaps easier to get the information and do the deal. Some of the virtual showrooms of companies on Hopin-hosted events are a pretty good imitation of a well-designed exhibition stand.

Trade show organisers can under-estimate the potential competitiveness of these digital events by viewing them as a 21st century version of the conferences that have long been mere ancillaries to some exhibitions. But some virtual events in 2020 were attended by tens of thousands of people with group sessions, meeting appointments, chat rooms, information exchanges, and virtual showrooms. It is easy to see why one research firm recently predicted the global market for virtual events would be growing by more than 23% for the next seven years and would be worth $774bn in 2027.

The accepted view is that in-person trade shows, at their best, uniquely help people to build relationships, ‘taste’ the product, and see industry competitors side by side. But, as in so many areas, the pandemic may have changed what people expect and what they will, however reluctantly, accept.

After all, who would have guessed so many millions of people would become accustomed to working from home and that executives everywhere would become content with recruiting – and doing deals with – people they had never met in-person?

Tough times make it easier to change the (previously successful) habits of a lifetime. And some digital events will be muscling into markets where the exhibitions have yet to resume their traditional scale and success.

The realisation that the trade show model is set to change dramatically may be one reason why the share price of the UK’s Hyve Group has doubled in the past year, despite the losses.

The trade show organiser was founded 30 years ago as ITE (International Trade Exhibitions) to seize the opportunities for trade as the former Soviet Union countries became market economies. Its first event was a Moscow motor show in 1992, and, by 2010, more than 80% of its revenue came from Russia and the emerging countries of Eastern and Southern Europe. But the company has had a turbulent time with Russian sanctions, a volatile Rouble, and uncertainty in Central Asia, Turkey and India. The company had become a sprawling portfolio of literally hundreds of shows when Mark Shashoua, one of its founding family, returned as CEO in 2016 after running trade shows elsewhere and working in private equity. 

His agenda was clear: to streamline the business, exit the most troublesome markets, and buy and build strong business in the US and UK. In two years, Shashoua and his team cut the portfolio from 269 exhibitions averaging £500k per event, to 75 events averaging £3m+. The renamed Hyve Group established a strong UK presence by acquiring some of the country’s largest shows (principally in gift retailing and education) in a £300m deal with Ascential.

In Russia, it sold off more than 70 small regional events to concentrate on its larger Moscow exhibitions. It acquired Mining Indaba from Euromoney, and scaled back its operations in Eastern and Southern Europe and Central Asia. In December 2019, Hyve acquired two US-based events: Shoptalk and Groceryshop for $145m.

In 2019, the company reported revenue of £220.7m. The huge upheaval seemed to be working and had helped the listed company to increase like-for-like revenue by 7% and its top 10 events by 13%. These leading shows had achieved double-digit revenue growth for three consecutive years. Hyve had become a £1bn business and had entered the London Stock Exchange’s top 250 companies. The estimable Shashoua was feeling good.

But then the pandemic struck. It blew a hole in Hyve’s balance sheet and forced it to raise £126.6m in a deeply discounted rights issue. It cut some £50m from its annual costs. Unlike most exhibitions groups, it was insured for a pandemic and has so far received some £70m of compensation with prospects of a further payout of up to £40m.

Hyve has actually spent the last two years developing digital models, centralising its management and hiring executives from business information and technology. CEO Shashoua has preached his “omni-channel” approach – combining hosted meetings at in-person events with year-round digital meetings, webinars and conferences. The model was developed from the Shoptalk acquisition. Its 2019 event had boasted of 8,000 meetings as 450 sponsors met with 1,500 individuals from 500 retailers. Last year, the company delivered some 150 webinars attracting 30k attendees.

Hyve is now a better balanced business, with Russia accounting for some 30% of revenues, and the UK for 20%. While its UK retail shows may suffer in the next year or two from the dearth of international exhibitors, notably from China, the revived Mosbuild in Moscow this year had 720 exhibitors (compared with 1,200 in 2019) which seems promising. But, like many exhibition organisers, it has little lee-way: investors expect a return to ‘normal’ profitability sooner rather than later.

Exhibition organisers might increasingly see their relationships with exhibitor-marketers and visitors-users in four stages:

  1. Live: Integrate exhibition meetings – with data, follow-up, and deal-intelligence
  2. Virtual: Establish parallel virtual events for online ‘visitors’
  3. Information: Buy / build / develop proprietary sector stats, research, forecasts, and benchmarking
  4. 24/7 Networking: Create membership groups / associations for information sharing and education

The agenda might reassure Hyve Group that it’s on the right track. But there’s a way to go on a journey whose completion would be marked by a definite shift away from the dependance on exhibitor-sponsorship-advertising revenue towards visitors-users-readers paying for information, access and opportunities. In many B2B verticals, these companies should seek to “own” statistics and intelligence on market activity, pricing, costs, and deals alongside the industry’s major events – like many single-sector B2B specialists which they could acquire or collaborate with.

Exhibition organisers which are fixated on live events at all costs will be tempted to provide such data free to exhibitors as sales inducements. That could be a classic mistake: paid-for information services can help them build audience loyalty, diversify revenues – and consolidate all-round leadership of an industry.

It’s easier said than done, of course, and requires new skills and resources, although Informa (for one) know all about high-value information, subscriptions and transactional revenue. Ownership of an industry’s key data would help trade show incumbents beat back the digital insurgents. That may mean exhibition companies buying or merging with digital players and B2B information companies.

They will be weighing those options at the same time as closing and merging many of their smaller shows. Freeing up the people and resources necessary to reinstate the most successful exhibitions requires organisers to be more selective about what events are worth fighting for and investing in. That whole mindset should create a wave of exhibition deals over the next 18 months. It’s a good time for partnerships and joint ventures.

Meanwhile, there’s the question of what might happen to Reed Exhibitions, the world’s second largest trade show company, whose RELX parent had once turned away approaches worth billions. The idea of a RELX swap for Informa’s Taylor & Francis academic publishing – to create a pureplay exhibitions leader – has never seemed more viable. Both companies need it and an all-share deal could help it happen. Private equity might also still be interested in trade shows – and not just those at Reed.

There’s the burning question of whether pe firms (which own two of the world’s five largest exhibition organisers and many of the smaller ones) will still want to increase their exposure to events. Or will they wait for digital deals to accelerate the recovery – and increase the price multiples?

Mark Shashoua’s revitalised Hyve Group might itself whet the appetites of would-be suitors in Asia which see the opportunity to expand beyond their core markets. Chinese investors are particularly active in many European markets currently. Closer to home, the fusion of exhibitions and business information might attract the UK’s cashed-up DMGT whose events across energy, construction, hospitality, interiors, and leisure (£119m revenue in 2019) would fit well with Hyve. Its newspapers might even help to boost Hyve’s UK retail shows.

Whether the exhibitions market will return to 2019 revenues any time soon (or even by 2022-3, as analysts forecast) the digitalisation of events may turbocharge M&A. You can hear the engines.

Reproduced with permission from Flashes & Flames, the weekly subscription newsletter for media executives and entrepreneurs.