Expanding your business into other countries through acquisition is not as straightforward as signing cheques and appointing a new manager. Here the two publicly listed organisers ITE and UBM give us some insight into the consideration and observation that takes place when they enter a new market through acquisition.
For a long time ITE has been looking to make its expansion based on geography, keeping to the emerging markets. Recently it altered its strategy to take its business into new verticals.
Over at UBM, the decisions to acquire and grow its business region is being made based on sustainable growth. Events must be scalable in the first instance as it is – like ITE – a public listed company. It has to measure the opportunity of an acquisition in another country against strict return-on-investment (ROI) criteria. Both companies operate across the world, competing in several markets.
ITE Group was founded in 1991, and has the leading share in the Russian exhibition market with 26 per cent where more than 450 people work for the company, running 140 shows. Correspondingly it has a large presence in the central Asian markets, resulting from its Russian customers and the business they are looking to do in these other countries. This enables it to go to those markets as well and take Russian businesses with it. And that has been the traditional expansion pattern for ITE.
“You are going to see ITE going to places that we would not traditionally have gone to,” says Baris Onay, the group’s digital director. “Today we have significant portfolios in construction, oil and gas, and food that require being in other places as well. So in the future, as the globe is spinning, we don’t have strict preferences on geography any more.
“But our pertinent strategy is to be where the growth is,” he says. “We see that more and more in Asia, and we have been developing our business accordingly with more Asian acquisitions and growth in that area.”
“I had the privilege of living this expansion from both inside and outside of ITE,” says Onay, who was brought into the fold through a Turkish acquisition three years ago. “We had been an acquisition target for a long time, talking to them and seeing their appetite for a construction exhibition firm in Turkey. We sat in an emerging market, in the construction sector, so we were a great fit.”
Onay says this kind of acquisition differs greatly from the point of view of the acquirer and the the acquired.
“When you are acquired, you feel that you are the only business that matters. From the other side, in this instance that of ITE, it is more about the financial wheel that has to go on spinning. You either spend your money on acquisition, or you have to do something else with it,” he explains.
And the most important element for ITE is to choose a business that has guaranteed growth. Most companies expect to pay different valuation multiples, pre-tax profits multiplied by the industry index. This is a rate of six to nine in the exhibition industry. For a listed company the ROI needs to happen rapidly to pay that money back.
“Our financial vehicle dictates that you have to put your money in a market where there is real growth, which in itself will fuel a sooner ROI for your business.
Growing gracefully
At UBM the focus is on forming partnerships of scale linked to sustainable growth. It wants to play in territories that have growth, where the primary industries have an exhibition at the heart of the community.
Both ITE and UBM have events in the pharmaceutical and food ingredients markets in Russia.
“Russia is a good example,” says David Gallacher-Olsson, commercial director of market development at UBM. “Russia is a fairly new player in the global market of pharmaceuticals ingredients, as it is in the food ingredients market.
“Where the government of Russia is supporting those markets, even with the current problems they’ve got, there is trade to be done. It is one market that I would call sustainable and growing, both in terms of the territory and the pharmaceuticals market there.”
“We look at the market dynamics, ask ourselves if a trade event is relevant to that market and is that market growing? If it is; then we’re interested. The challenge of course comes back to scale. Are the events that we look to partner or acquire able to be scaled? If they are not then that might suit some of the privately owned organisers, or smaller organisers whose appetite is to grow territorially.
He adds that while UBM is interested in territory, it is more interested in its events supporting the global market.
Having decided that a move into a new market is the right decision for your company, is acquisition the only way to grow?
Gallacher-Olsson says having a dynamic model for entry strategy into any territory is important, as acquisition is not always appropriate.
“It’s not always the right way to start,” he claims. “If the opportunity is quite small, then you may wish to partner with an organiser and see how it goes. That partner may not wish to sell. It might not be the right time and they might not be ready. It’s as much about the seller as it is about the buyer. Too many buyers don’t recognise that and get themselves in a bit of a kerfuffle about the unimportant stuff. Joint-venturing or otherwise partnering with an organiser will do just as well as simply buying.”
Onay says it often comes down to the company’s presence in a country. If it already has an office there then it might try to buy something. If doesn’t, and it wants to enter that country, then acquisition is still the fastest way in.
“Getting an asset that we know is working already, that is proven, is the key success factor for us,” he says. “We [re-]entered india very recently, and have a few different offices there. Now we are trying to partner them up and launch something together. It’s not always acquisition, but once we feel established enough in the markets, then we can use our international sales force to be the catalyser of a launch in that area.”
In the event a company does decide to make an acquisition, what is the appropriate share, if any, to leave with the company being acquired? For example, the CEO of an acquisition target who still owns 40 per cent of his company will have a vested interest in the ongoing success of the company. After all, the entrepreneur or leader who turned the company into a success and target for the acquirer, is often the company’s most valuable asset and one many companies would be loathe to remove.
Onay says there isn’t one single answer, and he has experience on both sides. “The company I was CEO of was acquired by ITE and I was left in charge. I was running it when ITE stepped in with 60 per cent of the share, with of course an option for the remaining 40 per cent. Our priorities didn’t change too much because we were given very broad brackets within which to operate by ITE.
“But sometimes we buy a business and it’s not as cosy as we might want it to be. In these cases you would want to put in more central control,” says Onay.
“Therefore it is a highly sensitive issue for PLCs like us, because you have to abide by a lot of governance rules, you have to be audited very heavily. So we have to have central control over certain areas that we definitely do go and impose.
“Sending a Brit to india for example, may not be the best thing to do. Sometimes it works, sometimes it doesn’t, it depends on the remit – whether you need to run everything or whether you want to make sure things are run the way you want them to be.”
Onay points out that when buying a local business, what you are actually buying is the right to do the show, the brand, and the people who run the show. If you don’t retain the latter part – the talent – then you are losing one-third of the show and perhaps taking it in another direction as a result.
Gallacher-Olsson says when buying, a company must first ask itself why it is buying that business, because it affects everything you do, or should do, afterwards.
“You should have an integration plan and you should have an integration person who is there to lead the process post-acquisition. Acquisitions tend to be rather one-hit wonders so the mergers and acquisitions boys get on with the transaction side of it, get it over the line and then they sort of disappear,” he says.
“Sometimes the people who have sold their business go and buy a car or a yacht, and they are very happy. But what is life like at 9am for their staff? The biggest challenge is culture and country, both of which drive business behaviour,” he says. “The culture of the company; drilling down into what you mean by that. What are the tangible assets of the business? What does the company do, how does it act? What is its behaviour, what’s in its DNA? Being able to recognise that and listen is important.”
However, for Gallacher-Olsson the greatest challenge is to employ someone at the mothership who is able to wear many different hats and dive into any territory and adopt the culture, to really listen to potential and existing clients and to take the culture, use it and build upon it. Because ultimately, success in your new playground is going to bring benefit to the rest of the group.
-- Words by Antony Reeve-Crook
