Exhibition News January 2018 - Page 32

FEATURE How much is your exhibition worth? Steve Monnington, MD of exhibition acquisition specialist Mayfi eld Merger Strategies, looks at the factors that affect the value of your business ahead of a potential sale W 32 ith a new year here, it’s the right time for many entrepreneurs to think about taking the life- changing decision to sell their business. If you’re one of them, this will be the most important moment of your business life and requires a considered, methodical approach. The sale process is not easy – it’s extremely time-consuming with many potential pitfalls for the unwary. Getting the right price for the business in order to unlock the value, and to reward all the years of hard work and risk, needs both careful planning and a cool head. Valuations in general Businesses are generally valued by buyers as a multiple of EBIT (Earnings Before Interest and Tax). As a general observation, multiples are higher today than they have been for a long time and this is being driven by the high number of buyers in the market chasing a relatively small number of businesses. There are three main types of buyers in the exhibition sector: • The Private Equity (PE) buyers, who are looking to get into the sector. Examples of these who have bought into the sector include Infl exion (CloserStill Media), Charterhouse (Comexposium) and Blackstone (Clarion). • The private equity-owned organisers - CloserStill, Comexposium and Clarion are three good examples. Once they have been acquired by a PE fi rm, they have large amounts of capital at their disposal to make a number of follow-on acquisitions in order to increase the size and value of the overall business for January 2018 | exhibitionnews.co.uk when the PE owner sells to another PE buyer. • The exhibition organisers who are either publicly quoted – Reed, UBM, Informa, Ascential, dmg, Tarsus etc –, privately owned, such as EasyFairs, Mack Brooks and Diversifi ed Communications, or the international arms of the European Fairgrounds such as Messe Frankfurt, Hannover Fairs and Messes Munich International. All told, there are around 35 regularly active purchasers of exhibitions worldwide. When these buyers compete in a sale process for a really good business, things become very competitive and valuations can get very high, and these days double digit multiples for larger businesses are becoming the norm. Valuations for smaller businesses are generally lower but are also increasing. Whereas the range of multiples for smaller businesses was 6x to 8x a few years ago, now they tend to be 7x to 9x. Where a business sits within the range depends on a number of factors shown in the box below. With so many buyers around it pays to engage with several of them before deciding who to sell to. TIP: Although buyers obviously prefer to negotiate on an exclusive basis, sellers won’t know if they have achieved the best price unless they run a competitive bidding process. A multiple of what? Sellers tend to get hung up on what the multiple is, rather than considering how it’s applied. For a fast-growing business, there is a world of difference between a valuation based on a multiple of 8x 2017 EBIT and one with an additional earn-out based on 8x the growth in profi ts over the next year or two years. When there is a bidding process, the earn- out mechanism a good way of negotiating a higher valuation from one bidder rather than trying to force through another increase in the headline multiple. A couple of years ago we had four bidders f ȁͥ́ݔ)ݕɔ͕ѡݼ́э)ѡȁѕɵ́ձѥɸ)ȁѡЁ啅ȸ]ɕѥѕѡ)䁹ѥѥ͕啅ȁɸЁЁ)ݕȁձѥݥѠѡ̸%Ё݅)ͥȁ݅Ѽѡݡ)ѡѥѡѥ嵕Ё݅)ݽѠፕ́ Ŵ)Q%@ᡥѥɝ͕́ɔՅ)٥啅ȁͼɔѡЁѡ)مՅѥѡͥ́́եи)%ӊéЁɽѠѥ)!ѽɥɽѠ́хЁ́եѼ)ѡɔ%ԁٔᡥѥѡӊe)ɽݸՉхѥ䁽ٕȁѡЁѡɕ)ȁ啅̰ѡӊéٕɽѥ)ѡЁЁ́兰ɽݥᡥѽȁ)٥ͥѽȁ͔剽䁉她ѡͥ́)她ѡɔЁѡЁ)եѼݡЁ䁡ѡɔ%)ԁٔ͡܁ѡӊéչձѥݥ䁥)ѕɵ́ɿх啅ȵѼ啅)ӊéЁѼٔ役