Bankruptcy Restructurings Test the Trade Show Industry

HIL ANDERSON, SENIOR EDITOR
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New York, NY – When Questex Media Group promised to continue “business as usual” after filing for Chapter 11 bankruptcy protection, it reflected a path toward restructuring without an interruption of business. This is a move that some other media companies have followed since the recession began.

The downturn hit print and online advertising revenues as well as trade show participation, forcing several integrated media companies into a fast rewrite of their financial obligations. It is estimated that eight major show organizations (excluding Reed Exhibitions) are facing major funding challenges. The strategy for Questex and other firms caught in the revenue squeeze has been to approach their lenders and business partners to make deals that keep operations running normally and avoid collapsing their show portfolios.

“Questex’s top priority is serving our valued customers,” CEO Kerry Gumas said in announcing the bankruptcy filing October 5. “This restructuring will enable our team members to remain focused on creating and delivering superior products and services.”

Questex has declined to discuss life under bankruptcy in detail, but predicted solid performances from upcoming shows such as Luxury Travel Expo in December and the Nightclub & Bar Convention and Trade Show next Spring. “All of our events will continue as planned,” Executive Vice President Jon Leibowitz told Trade Show Executive. “Questex and its event staff are 100% focused on delivering for many years to come the quality trade show experience our attendees and exhibitors have come to expect.”

Questex’s Chapter 11 petition was one of the higher-profile restructurings in the exhibition industry, but by no means the only one. Penton Media this Fall retained the investment firm Rothschild, Inc. to go over their capital structure. In a memo sent out to employees, CEO Sharon Rowlands said, “This announcement will potentially result in the company substantially reducing the debt it has to service.”

Cygnus Business Media spent less than three months in Chapter 11 this year and emerged September 21 with a pre-packaged reorganization plan in place. The plan included provisions for an exchange of debt for equity and ensured that non-secured creditors – such as Cygnus’ vendors – would be paid in-full.

The cards did not fall as well for Ascend Media, which filed for Chapter 7 liquidation on November 3. Prior, the company sold off nearly all of its operating units, including its Event and Custom Media Division to an equity group that included Cam Bishop, the company’s founder and former CEO. Bishop’s new enterprise, Ascend Event Media, remains in the same Overland Park office space it occupied since 2002. It is no longer part of the Ascend Media that filed for Chapter 7.

Advanstar Communications, Inc. struck a deal with its lenders in September that erased about $385 million in mezzanine and second-lien debt. It also lined up a $25 million capital infusion. Advanstar CEO Joe Loggia told TSE at the time that the deal cleared the decks for “a strategy to reinvent our magazine business.” (See TSE, October 2009).

The extent to which the decks are “cleared” will differ from company to company and depend on the circumstances each firm is contending with. But these moves will have a ripple effect on the suppliers, venues and exhibitors in the exhibition industry. The impact is likely just around the corner and may be widespread. As one industry source put it, “If there is misery, it will likely be equitable.”

Triple Whammy

Executives and analysts in the trade show industry chalked up the recent restructurings to the combined effects of reduced earnings in print, online and live events. Most asked that their names not be revealed and limited their observations to general business conditions rather than discussing specific companies.

There was agreement that the overall economic downturn that began last Fall negatively affected strategies to grow revenues from exhibitions to compensate for the long-running decline in print advertising. Online ad revenues were expected to provide a boost as well. “Magazines fell off a cliff in 2009 and online growth has been disappointing,” said one source. “Exhibitions are the third leg of the stool, and if they break organizers will be in dire straits,” he cautioned.

“There are those companies that have good business, but currently business is soft,” the source said. “It is the balance sheet that is awry. Cash flow just is not sufficient.”

A tighter cash flow is never good news in any industry because of the monthly obligations that include payroll and operational overhead. Many media companies also have to service a debt load that very well could have been incurred in order to launch their integrated-media strategies.

Staying in the Game

Working out a new plan can trim an organization’s sails and get it through the recessionary storm relatively unscathed. But that may not be in the cards for every company. That means the next step could lead to bankruptcy court and a Chapter 11 petition that might buy additional time to avoid liquidation.

“The way bankruptcies go these days, there is usually a pre-conceived plan drawn up before the filing,” said another source. “In the old days, companies would often go from Chapter 11 to Chapter 7 liquidation. Now they go into Chapter 11 almost as a planned way to pull the rug out from under their obligations and not skip a beat on the operations side.”

Jonathan Howe, the president/senior and founding partner with the Chicago law firm Howe & Hutton, Ltd., agreed that bankruptcy doesn’t have the stigma it used to have. “It allows you to shed some of your more onerous obligations,” Howe said. “It helps clear the slate.”

On the other hand, bankruptcy proceedings are not to be confused with a gentlemanly Mulligan on the golf course. Management must deal with its situation, Howe said, and make some amends to the company’s backers. “Reorganization is for the benefit of the creditors,” said Howe. “They will have to come up with a reorganization plan that allows the business to continue. But that also raises the question of who is running the company: current management or their lenders?”

Bending, but Not Breaking

Since a change in the company’s immediate environment is what caused the trouble, it is unlikely that business will continue exactly as it had. Analysts agreed the best outcome to any restructuring is one in which business relationships among the company, its suppliers and customers bend slightly, but never break. “The only option they have is to restructure or go into Chapter 11, and that’s where heads get banged together,” one source said.

Trade show organizers differ from most companies. Their events occur during specific dates and are scheduled far in advance, when the economy should be well into recovery. “However, courts generally deal with the here and now,” said Howe.

How will bankruptcy impact the relationships between restructuring companies, their vendors and their exhibitors? Here is a look at some possible outcomes:

  • Relationships with vendors. Contractors will likely bear the brunt of a bankruptcy. Sources said it was unlikely any unpaid balances would be enough to drag under any but the smallest contractors. Given the limited scope of the exhibition industry, it is unlikely that the two parties would be able to part ways permanently. Organizers need the contractors to bring the show to life, but contractors also need the organizers. Sources expect some restructurings and bankruptcies to result in some contractors forgoing short-term revenues in exchange for longer-term contracts. “None of the suppliers will be required to continue doing business with a show organizer. However, they might consider cutting the organizer a break this year because they will get longer-term business,” a source said.
  • Relationships with venues. Relocating a major show to a less expensive city runs into the issue of cancellation fees. It also raises marketing questions since the venue can play a critical role in whether or not an attendee or exhibitor takes part. “If I planned to exhibit in City A, but now the show will be in City B, I won’t do as well in the city that has less appeal to attendees,” Howe said.
  • Relationships with exhibitors. Deposits paid by exhibitors are a potential problem for organizers in bankruptcy. The money received prior to the bankruptcy petition could become part of the company assets. “Exhibitor contracts are an asset,” said Howe. “But exhibitor contracts are also contracts to be performed.” Another source said that status could mean the deposits are used to pay creditors immediately rather than to bankroll the show. “They will probably work to defend those funds in court, but the court could tell them to take a hike. The exhibitors paid in and are in the same boat as everyone else,” the source said.

The reorganization of some of the trade show industry’s most respected names is also being played out against a backdrop of uncertainty about the future. The integrated media approach appears to be a logical strategy that goes beyond merely selling floor space and sponsorships. However, the sag in the economy hit companies in their attendance and advertising streams just when they were getting off the ground.

Faith in the future of the business will likely be an important area of emphasis – particularly when organizers present new strategies to their creditors and, if necessary, a bankruptcy judge. Sources told TSE that the key will be for organizers and suppliers to remain focused on the big picture. “These companies rely on one another for their business,” said one source. “We’re all in this together.”

Reach Jonathan Howe at (312) 263-3001 or jth@howehutton.com; Jon Leibowitz at (617) 219-8300 or jleibowitz@questex.com; Joe Loggia at (818) 593-5000 or jloggia@advanstar.com; other sources who requested anonymity