Consolidation and Its Aftereffects

A wave of buying and selling is reshaping the gift show world.

By Eliza Gallo -- Gifts & Decorative Accessories, 1/1/2001

In November 2000, DMG World Media purchased 25 percent of fellow gift show organizer George Little Management (GLM) in a $70 million deal. DMG, which already owned five North American gift shows and controlled more than 260 conventions worldwide, announced that it planned to fully purchase GLM (which produces 16 U.S. gift shows and 34 U.S. conventions in total) at some point in the future. Fred Barnes, president of the gift sector worldwide at DMG, estimates that the complete purchase will occur in 12 to 15 years. When that happens, DMG will stand at the head of a combined empire that currently includes 26 gift shows in North America.

And the DMG/GLM alliance is only one in a string of recent deals that are transforming the gift show environment. Also in November 2000, GLM and Western Exhibitors, already partnered with regard to gift shows in Boston, San Francisco, Portland, Seattle, and Washington, jointly purchased from KJ Expositions the International New Age Trade Shows, which feature many product categories that overlap with giftware. Going back a little farther, Merchandise Mart Properties (MMPI), which was itself bought by Vornado Realty Trust in April 1998, bought Beckman's Handcrafted Gift Show from the now defunct Industry Productions of America in January 2000 and the Chicago Gift Show from GLM in February 2000. In July 2000, Fairchild Urban Expositions became Urban Expositions after Urban bought out Fairchild Publications' stake. And in May 1999, DMG bought the California Gift Show from AMC. Even Gifts & Dec's parent company, Reed Elsevier, got into the act, purchasing Miller Freeman's European trade show division (including the Maison & Objet and Macef gift and decorative accessory shows) in July 2000.

Feeling a little dizzy? Well, more activity may be just over the horizon. We asked the major gift show players about the possibility of future acquisitions, and all (with the exception of AMC president Jack Ryan, who declined to comment for this article) answered cagily that they wouldn't rule anything out. Western Exhibitors president Mike Dean eschewed the word "acquired." "I like to use the old term 'strategic alliance,'" he said. "I certainly would look for the opportunity to form more strategic alliances. If that meant trading stock, then so be it, as long as it allows us to keep major control of our company." Questioned about rumors that DMG was eyeing Western Exhibitors, DMG's Barnes commented: "We think Western is-as we thought of GLM-an excellently managed company, privately owned. They already have an arrangement with GLM, so there is, by virtue of what we're doing with GLM, a slight affiliation already. Obviously, if it was available, it is something that we would look at very seriously."

Asked about MMPI's future activity, vice president of business development Mark Falanga responded, "Our overall plan is to strengthen and deepen our presence in the industries we are currently involved in." And, when presented with the possibility of an acquisition, sale, or partnership in the Dallas Market Center's future, president and CEO Bill Winsor commented: "I don't think we'd ever say 'never' to any of those things. I think we have to be very open to changes that are impacting our business and be open to partnering with others on circumstances that make sense. Clearly, we're always open to those kinds of discussions and opportunities."

The Origins of the Trend

The executives interviewed agree that the recent flurry of activity on the acquisition front represents an emerging trend, with the exception of Falanga, who feels that it's a matter of "sheer coincidence." Michael Hughes, director of research services at the industry magazine Tradeshow Week, noted: "There's been a merger and acquisition trend going on in the trade show business for the last few years..It's not just in trade shows; it's in business-to-business media, it's in the economy in general." Hughes explained: "Essentially, what's going on is that the trade show business is maturing. Trade shows are becoming like other businesses, which are sometimes routinely bought and sold. Trade shows are strong businesses and are attractive to investors and media companies, because they tend to be stronger businesses than magazines in general."

Western Exhibitors' Mike Dean feels that, while the consolidation trend has "become on fire the last four years," it began a decade ago when publisher Harcourt began buying up trade show companies. "People that dealt in the media looked at trade shows as being key to their business, to marketing.. So publishing companies started buying trade shows, and trade shows started buying publishing companies.. And then Wall Street started identifying trade shows as very viable businesses that had good cash flow, and they got interested in them, and therefore investment bankers got interested in them, and then the money became available to start buying these shows," Dean explained. "All kinds of foreign companies started buying domestic trade shows and international trade shows, and built huge portfolios, and the numbers got very, very large. So a lot of the individual trade show producers, for the first time in their lives, started looking at their businesses differently, and saying, 'My gosh, my business is worth a lot.'" He said that, while this history deals primarily with public companies buying privately held trade shows, "in the gift industry we are just following suit with everything else that's happening." Dean explained that, in today's business climate, it seems that "if you don't form alliances and if you don't consolidate, then you lose ground."

"I think the trend that we're seeing today is probably more prevalent than in the past," put in the Dallas Market Center's Winsor, theorizing that it began with the purchase of MMPI by Vornado. "I think it's a function of some of the issues that are going on with the economy, in terms of people trying to create alliances to fill gaps that they might have, and bridge themselves with partners that might bring expertise that would be helpful..If one plus one is greater than two, then people are tending to recognize that it's best to merge or acquire.." Winsor also cited the changing nature of gift show ownership as a factor. "If you look at the ownership of most of the majors, they tended to be patriarchal families. And I think that you're getting a situation where.the families are ceding control and allowing their companies to be merged and acquired with others. I think it's just a function of timing as much as anything..Fifteen years ago, or even five years ago, there was still a fierce independence within the family-owned businesses that you don't necessarily see today."

DMG's Barnes and GLM president Jeff Little agreed that there is a trend in the making. "I think it's something that's been going on for a while," said Barnes. "It's probably become more prevalent and more high profile in the last few years." Like Winsor, Little pointed out that the gift show business has long been family-oriented, and that that is starting to change. Little said that trend is "relatively new-certainly accelerating in the last couple of years."

Internet Threat

Mike Dean also drew an interesting connection between the increase in trade show consolidation and recent technological developments. He said that initially the rise of business-to-consumer and business-to-business sites on the Internet struck fear into the hearts of gift show folk; first they thought that their industry as a whole might be hurt, and then they worried that retailers would deal directly with the manufacturers and bypass the conventions entirely. Because of the recent failures of many dot-coms, Dean observed, "the threat doesn't seem to be as real as it once was." But it still exists. Dean pointed out that the Internet companies are outsiders trying to break into the gift industry. "It's kind of looking like an attack from outer space. To protect our brick-and-mortar businesses, it makes sense to form alliances with the standard brick-and-mortar old-line companies and start utilizing our databases and our relationships to do our own Internet businesses." He concluded that the consolidation trend has two primary causes: first, the fact that "for the first time we're really marketable," and second, the fact that gift show organizers are "taking the lead from what is happening in the economy in general and saying, 'We need to form some strategic alliances to poise ourselves to grow and to keep control of our industry.'"

The Advantages

Naturally, there are benefits to consolidation for the companies involved, or they wouldn't be making the deals. The industry execs identified a variety of advantages, both broad and specific. Said the Dallas Market Center's Winsor: "The single biggest advantage is being able to consolidate your operating expenses and your talent across multiple venues..You in essence are building relationships in the gift industry, specifically with manufacturers, and also, on a regional basis, with buyers. To be able to leverage that relationship across multiple venues [gives you] a supreme advantage over independents that are battling it out one-on-one." He concluded, "If you can take your resources and expand them into other venues without incremental cost in a significant way, then the margins that you yield are going to be much better."

Hughes of Tradeshow Week said that the strategy of trade show producers today is to bulk up their holdings in particular industry segments or niches. "The goal is to cover them very well through multiple media; meaning, a number of these companies want to own the leading magazine in the sector, the leading trade show, the leading conference. They also want to provide direct marketing services-for example, a very deep Web site. Basically, they're circling industry sectors.with multiple media in order to provide better coverage of an industry," he explained.

This fits in with MMPI's current strategy. According to Mark Falanga, his company is focusing its energies on six specific segments, which include the gift industry, the residential furniture industry, and the residential home accessories industry. He explained, "There's a great benefit to this incremental growth in the industries that we're in, as opposed to growth in new industries in which we have little or no familiarity." Falanga added that, thanks to its trade show acquisitions, his company is able to form strong relationships with manufacturers, industry associations, and publications. "What occurs is that we become a more important entity to each of these parties that ultimately affect the success of creating a vibrant marketplace..We become a more effective, more capable manager of bringing buyers and sellers together," he said. Falanga also discussed one major benefit of being acquired: financial clout. "Vornado's invested over $250 million in our growth since they've acquired us," he pointed out. "Had it not been for Vornado's purchase of the Merchandise Mart, we probably would not have been as aggressive as we are able to be at this point and have been. Because they've got a lot of cash, and there's a great deal of support."

Jeff Little of GLM echoed these sentiments when discussing the benefits of the new arrangement with DMG. "It gives us a relationship with a company that has the financial wherewithal to do some things down the road that we may want to do which we probably could not have done on our own, because, as a private company, we don't have the same access to capital that they have," Little noted. "The advantage for DMG is that they get a platform.to run a lot of shows in a lot of places. There are always economies of scale as you get bigger, and.you don't necessarily have to add the entire infrastructure in order to run those shows."

Exit Strategies

In further support of the theory that gift show companies are moving beyond the family-owned model, Little said of the eventual outright purchase of GLM: "We're going to, in effect, monetize the value of our company. Ultimately, I guess you sell when you feel that you're getting the right price at the right time..All of us among the partnership will be of an age at that point when I think it'll be comfortable to pass it on." Fred Barnes of DMG put in: "GLM was a company, obviously very high profile, extremely well managed, privately owned-three things that are very important to us..They're not particularly interested in getting out of the business. But if you're privately owned,.you have to design some type of an exit strategy. Theirs obviously was very long-term." He continued, "In some industries, size is not important, but I think in ours size does matter." Like MMPI, DMG has identified certain sectors that it wants to occupy, and the gift industry is one of them. Barnes offers his view of the DMG/GLM partnership: "It was a coming together of two forces, each with maybe a little bit different motivation, but it was a great fit."

The Implications

Of course, whenever a situation arises in which a few companies own a large part of a single market, the word "monopoly" rears its head. Is it possible that this consolidation will have a negative impact on exhibitors or buyers? It may be possible, but the consensus among this group of executives is that it's not likely. Tradeshow Week's Hughes commented: "The fear, I guess, is that acquirers might jack up space rates, but I doubt that [will happen]. That doesn't seem to be the case when companies acquire. Trade shows are very close to their marketplace, so it's usually business as usual." Winsor of the Dallas Market Center opined: "Good show management is going to make that a benign issue to an exhibitor." He noted that in some other industries, he's seen acquisitions result in exhibitor worries and increased booth costs. However, Winsor said: "I don't think that's the case with gift..It's not that large of an industry per se." He suggested that, because of the small, regional nature of the gift show environment, consolidation could actually yield some benefits for exhibitors. "They could sign multiyear contracts and multiple-show contracts that reduce rates." Winsor is also confident that buyers won't be negatively impacted by consolidation. Although a new organizer could conceivably effect negative changes in a show, Winsor feels that "smart management would not do that." And, he said, "there's less room for people that don't run good shows today than there was in the past."

GLM's Jeff Little concurs with this view. "We've been in this business a long time,.and I think that we care about the exhibitors and the fact that they make money. That's basically been our philosophy, and that's the way we want it to continue." He doubts that the cost of exhibiting will change as a result of the new alliance with DMG.

Barnes of DMG dismissed the threat of monopoly. "As much as we'd like to think that we control the gift segment, unfortunately that isn't true, and we have some very good competitors," he observed. "I don't think that anybody-including ourselves, now-is large enough to get too far out of line with what the practices of the gift market are."

Speaking of exhibitor and buyer benefits that stem from trade show consolidation, Falanga noted that MMPI can use its relationship with a regional manufacturer at one show to expose buyers at another show to a new product line that they would never have seen otherwise. Western Exhibitors' Dean agreed: "Buyers are going to have more opportunity to see more product and feel like they're doing it with a real friendly connection.something they're familiar with. It'll give it a little more credence." Barnes spoke of instructions and forms that are uniform across several shows, making the experience of attending conventions less confusing for all. He hopes that "when people go to a combined GLM/DMG show, they'll know what to expect, how it's going to be produced, what the rules and regulations are." Barnes also envisions implementing incentives for larger exhibitors and larger buyers who want to participate in multiple shows. "There are incentives that we can start to look at, because of how large [we are] and how many shows we do now control," he explained.

The Road Ahead

The various ramifications and side effects of trade show consolidation will become more clear as the trend develops. And develop it will, according to these industry insiders. Michael Hughes of Tradeshow Week said that he fully expects the trend to continue, so long as the economy stays strong and the cost of capital remains reasonable. "Going forward, we think we'll see more mergers and acquisitions, definitely," he stated. "I think it's going to continue," agreed Bill Winsor of the Dallas Market Center. "I think you're going to see alliances that form that probably would have been heresy years ago. It's a function of new management, changing opinions within ownership, and just the whole asset reallocation that's going on."