Three things to get right when investing into events businesses
Lately, I've been approached by more than a few analysts acting on behalf of Private Equity firms looking at investing in B2B Event businesses. Now, this is not my primary domain of expertise, but even I can tell something is going on. Whether it's "distressed assets" or a "recovery scenario", one thing we can be sure of is that there's more PE money circling our industry than ever; as far as I can remember. Depending on the size of these PE houses, they might be after some of the biggest names out there in the public domain, considering lending more to existing PE-owned organisers, or working with established industry executives to go on a shopping spree to build new businesses from scratch.
As part of these exchanges, I've been asked some thought-provoking questions (as anyone who's ever dealt with investors would understand) and some incredibly silly ones (ditto). Leaving aside the obvious financial, commercial and legal ones, here are my top three favourite answers to the main question I'm being asked:
What would you look at if you were investing in an event business right now?
1- Data Due Diligence
No surprise here. I remember a SPA we signed (back in 2011 as a seller) had a clause that literally said the data and databases that allowed trading would be handed over on a CD post completion, and that was pretty much the only reference to it. For that deal, 10 year ago perhaps this was adequate but those days must now be left in the past, and we must remove the stigma around "We cannot ask them about their data". You bet we can. That's at the core of the business we're buying. If I were on the buy side today, I'd get a third party to ask the questions below to the target:
How many contacts have you lost access to due to the Pandemic job loss, and what have you done to restore access to the accounts for which you held only one contact? I know this is a bit detailed and dull, but one question can tell you a lot about the team you're investing into.
Whilst we're at it, here's a non-exhaustive list of data metrics I'd love to use as part of my negotiation strategy:
What's the contact-to-account ratio for exhibitors? (in plain English, how many people do they know at their customers and potential customers?)
Do you have the products/services of your customers adequately tagged in your CRM? If so, what's the average product per customer? (simply, Do they know what their customers actually do?)
Do you have a data quality metric? What is it made up of? Recency? Completeness? What else? (read: do you actually care about any of this stuff?)
A quick word of personal advice, just take short answers for these. Simply discard any long-winded explanations.
2- Digital Talent, do they have it?
Now that we have a rough idea of where they stand vis-à-vis their data capabilities, I think it's time we insist on a minimum degree of digital literacy at key Leadership positions starting from the very top. The prevailing FD -> CFO -> CEO route in our industry has proven incredibly successful for times when organic growth was riding slightly above GDP in single digits and actual business growth was sustained inorganically.
But now, times are changing and we need the top execs to make calls in domains which might be slightly outside their current skill set. The hottest topics of our industry: Digital revenues, data governance and virtual/hybrid all require digital expertise to both set the strategy and execute it. I'm putting my money on more Digital Talent making their way into those board rooms, fast.
On this, as part of my humble contribution to Denzil and Marco's book, Re-inventing Live, I had proposed a checklist for digital preparedness. You can find the complete list in the book, but here's what I'd insist on the executive leadership to (at least) be interested in:
Do you have someone responsible for digital who's not your Head of IT and does not report to the IT function? Do they have a team? Who do they report to?
How often do you engage with your head of marketing? Does Marketing sit at the board table? Who does Marketing report to? And most importantly, is marketing a cost centre to you?
Are you on your marketing seed list? (meaning: do you receive all your outbound email marketing?)
Are you following ALL your show social accounts? (I don't have an account on X, isn't an excuse)
Do you register to your events as a visitor? Do you like what you see? Who notices?
Do you try out lead generation forms on your website? What happens? Who notices?
Do you know who your registration provider is?
Can you name your CRM, email marketing (or marketing automation) or any other key tech vendor(s)?
As per above, short answers only.
3- Real Performance
Events are coming back, that's for sure. But they're not -fully- back, which is also understandable. So, this year, we're left with a below usual performance event with a big expectation to bounce back in the near-term future. Let's unpick this year's performance then. Here are my performance-related questions:
What's the amount (m2, %, £) of new business sold into this edition? Is this mainly a show sold and deferred from over a year ago? Or are you getting new traction? How does this compare to your usual new business?
How did the visitor/exhibitor rate do? Especially for international visitors? We know many people lost their jobs, so the visitor database must be due for an update (see question set 1), and travel is much more complicated these days. So, I'm assuming the visitor numbers are lower, but the ratio might still be holding up or even getting better with a smaller show. Is this the case? Or has the decline of visitors been steeper than exhibitors?
Is there any pressure on the frequency of the show? If annual, is there a group of exhibitors who want to go biennial?
Bonus question:
Payment terms
As any exhibition business CFO would attest, our industry has long enjoyed an incredibly privileged working capital position: Sell first, frontload the collection, and deliver (much) later. This was propelled by ever-rising rebooking rates and controllable variable costs (especially if you're paying per m2 used for your halls).
Hand on heart, now tell me which client is ready to fully-commit to an in-person show a year or two ahead, let alone agree to a payment plan and be 100% invested before the doors open? I'm a bit rusty in big show rebooking, but my educated guess is that a significant shift is looming in many organisers' cash positions.
These questions (or anything outside legal and commercial) historically never land well with deal-fever stricken investors. There's a well-known correlation between deals getting done and executives getting paid, so the interests of the parties involved always favour a less complicated deal process. However, times are changing, and I'm hoping some of these questions become more prominent in those deal rooms being setup today.
If you've come this far and read the whole piece, let me know what you think below in the comments, or contact me for help asking these questions and more to your targets.