If you’ve ever thought about selling your event or finding a partner to buy into it, you’ll have wondered how to go about putting a value on it.
According to Steve Monnington, Managing Director of Mayfield Media Strategies, most people have no idea where to start.
That being the case, we asked Steve to talk us through the basics. Mayfield Media Strategies is a global specialist in mergers and acquisitions for the exhibition industry and has been negotiating deals for the last 15 years.
So tell us, how does one go about putting a value on their event?
People only ever value these things when they want to have a transaction. They want to sell their event, find an investor, or they get approached to sell it.
The question I’m asked most is “what are the multiples?” It’s an impossible question to answer as a generality. Having said that, there are a number of benchmarks and it’s fair to say that almost every business is valued or effectively sold for a value that’s based on a multiple of pre-tax profits that the company generates.
Anecdotally people hear about the sort of values other people sell their businesses for. Although there is this common basis for valuation, the wrong assumption is made that there is a one-size-fits-all multiple that can be applied to all businesses. That couldn’t be further from the truth.
Are different types of events valued differently?
Yes. Exhibitions and conferences, for example, are valued completely differently. If we start with exhibitions, my view is that the valuation is driven 50% based on the dynamics of the business and business model itself and 50% on who the purchaser is.
By that I mean, what is the sector? Is it an interesting or growth sector? For example, if you had a show related to machinery, where the longevity of the event is likely to be substantial, it’s going to be worth more than a show based on social media where the pace of change is so fast your topic might not be relevant in three year’s time.
Whenever we sell a business, the first thing we do is our own internal valuation to benchmark against the price expectations of the seller. This is to avoid an offer coming in four months down the line and the seller turning round and saying “I want five times that amount of money” and everyone’s time has been wasted.
We look at the sector and the strength of the show within that sector – is it the market-leading event? Does it have strong competition? Is it the second or third show in terms of the marketplace? A market-leading show will be valued on a much higher basis than a show that is the third or fourth sharing the sector, for example.
Is it necessary for the event to have demonstrated a lot of growth?
The historic growth is important to a point, as a guide to the future. If you have an event that’s grown substantially over the last three or four years, it is a very strong indication it’s got a loyal and growing exhibitor and visitor base.
Anybody buying the business is not buying the past; they’re buying the future. But the past can be a good guide to what may happen in the future. If you’ve got a show that’s undulating wildly in terms of profitability it’s not going to give anyone great confidence about whether that’s a show that’s going to be sustainable in the long run.
What’s the ideal age for an event if you want to sell it?
Normally people like to have at least three years of historic information, to actually show the business has grown and established itself in the market. But equally, if someone sells a show that’s been around for 20 years and is still very small, they’ll want to know why it hasn’t grown.
Timing is important. Someone selling a business always needs to leave growth in the business for the buyer. Entrepreneurs are not very good at doing that; they delay selling because they think “I can earn a whole load more money next year and the year after and then I’ll sell”. However, if the growth rate starts to plateaux then it’s going to be worth less because you’re not leaving enough growth in the business.
Most events people sell have been running for a minimum of three years but could easily have been running for five or even 10 years. Having said that, we sold a show a few years ago at its very first event and the seller did very well out of it, so every rule has its exception.
What other factors influence the asking price?
We actually don’t put an asking price or guide price on the businesses we sell. It’s not a case of saying “I think my business is worth x”. It’s much better to let the market value the business.
If I send out the same Information Memorandum to four potential buyers I will get four completely different offers. It’s not unusual for the highest offer to be more than double the lowest offer.
That can be a result of the company’s own internal mechanisms – some companies are mean and don’t like to pay much money, while some companies realise they have to pay more to get something.
The event may have a higher strategic value for one company than another and some may want to pay more for it because they don’t want one of their competitors to get it. All of that plays into the valuation.
When the purchasers are doing their own internal valuation they project figures out for five, 10, even 20 years and they all work on individual metrics, like return on investment and internal rate of return, in coming up with their final valuation.
Can you give us an indication of the multiples involved?
Trade exhibitions tend to command the highest multiples. As a rule of thumb, the valuation of B2B shows tends to be in the range of six times and nine times profit before tax (EBIT). You will get offers four or five times, but the vast majority of businesses sell for between six and nine times the most recent year’s profit, which is a big range, but there are so many different factors.
If you have a buyer that really wants a show, it’s market-leading, has shown great growth with great growth potential, then it will be at the top end of that range. Shows not in such an exciting sector with strong competition and that don’t have as much growth potential will sit further down the range.
In some cases there is also a deferred consideration; the purchasers pays an additional amount based on the growth of the business over the next couple of years. You’re able to do that if you feel there are circumstances that have meant the business couldn’t grow as fast as it should have done, but it’s going to grow quickly in the future, or just by sheer force of negotiation because there are a lot of people interested in the business.
And what about consumer shows?
When you come to consumer shows, valuations are generally lower. At B2B shows you are communicating with a community and that community will always be there because it’s their business, with a consumer show they’re a lot more fickle.
Your profits are a lot more dependant on the visitor revenues, which is not the case with B2B shows. At a B2B show, usually the revenue from selling stands and sponsorships accounts for more than 95% of the revenue.
With consumer shows, a substantial part of the revenue will come from the gate, so before you open the show you don’t actually know if you’ve made a profit. It can be dependent on the fickleness of your audience, the weather, a tube strike – all of these things.
It’s much harder for a buyer to add value with their existing portfolio to a consumer event. The growth potential is generally considered to be a lot less and therefor consumer shows tend to trade at a lower multiple than B2B shows – on a scale of four to seven times EBIT. Actually there are far fewer buyers for consumer shows compared to B2B.
How are conferences valued?
Conferences also trade on lower multiples than trade shows because the barrier to entry is much, much lower.
If you have a market-leading exhibition that takes place at ExCeL every year and is doing a good job it’s actually very hard for someone to launch in competition.
The community doesn’t actually welcome competition because it just means they’ve got a problem deciding where they spend their marketing money. They prefer to have an established event that is representative of the sector and then they will support that event. People that launch in competition generally don’t do very well.
Another factor that limits the value of conferences is that growth is much more difficult to foresee. A lot of conferences tend to concentrate on one subject one year and then the following year concentrate on another subject. You’re almost reinventing yourself every year, whereas with a trade show you’re effectively running the same event every year.
Conference businesses tend to have a larger portfolio of smaller events and are therefore more susceptible to downturns because the difference between profit and loss is very small. Just a swing in sponsorship revenue can take you from a profit into a loss.
Prospective purchasers look at your intellectual property – what do you actually own? You can’t even necessarily say you own a habit that people have exhibited at this event for the last 10 years because it’s shifting all the time. For those reasons the range is lower for conference businesses.
It’s difficult for me to put my finger on what the actual range is because we stay away from selling conference businesses for that very reason. But I would say it would be more akin to the lower end of the consumer shows.
So, if you’re starting an event with a view to growing something you can sell in the future, an exhibition is the best choice?
An event that combines a conference and an exhibition is probably something that will give you the greatest value.
One example of this is the sale of Closer Still Media, which took place earlier this year and saw a massive, double digit multiple.
The company runs events in the fields of healthcare and IT. For the healthcare sector they target the dentistry, pharmacy and veterinary medicine sectors, where there is a requirement for CPD (continuing professional development). They created a hybrid conference and exhibition model that bucked the trend by offering free or very low rate conference places and also provided qualifying CPD hours. As a result, the whole community turned its focus on those events.
Because the high quality conferences were attracting so many delegates, all of the exhibitors that sell to those sectors wanted to be there. You end up with a very fast growth exhibition driven by lots of delegates receiving very low cost or free education. It was all about finding a model that could deliver sustainable growth.
The sale of Closer Still Media resulted in one of the highest multiples that has been paid for a UK business in the last three to five years.
Do you hope to one day be able to sell your event or events business or are you focused on short-term profits? Let us know in the comments…