THE CHANGING LANDSCAPE OF LIVE EVENTS THROUGH M&A

Hello, this is Les Goldberg, and welcome to The Road Ahead. The Road Ahead podcast is dedicated to the future of the live events business, bringing together industry experts. Hello, production world, this is Les Goldberg and The Road Ahead. Today I have one amazing guest. I have Ivan Fernandes and Ivan is the CEO of Digital Business Partner, and I'm excited that he's on the show today because our topic is what is happening with all the mergers and acquisitions of all the production companies. And Ivan is an industry, a person that helps companies. And I'd like to introduce Ivan. Ivan, welcome to the show. Thank you very much for having me. It's a pleasure to join you guys. Like I last mentioned, I work with loads of different companies, including production companies across our work with agencies and around advisory around the M&A, and also run do lots of keynote speeches and presentations, are going to be doing a few things and that's also invest in a few. Some companies I saw in a few other companies that I work with, the ones I feel that are changing the world. So I do have some equity in those businesses. So that's me. Well, it sounds like you have a little bit of knowledge that we're going to hopefully get your opinions on today on the world of mergers and acquisitions and all these event production companies. And it seems like in the last few weeks it is absolutely. You get one announcement over another announcement of some merger acquisition, some PE firm has bought one or, you know, a lot of activity. So what fundamentally is fueling the surge of M&A across the event production industry, in your opinion what's happening that's causing this? Yeah, I think basically private equity as probably aware, has been buying significant portions of our industry as a whole. And I think one of the key things in terms of the production side of things is was untapped market and event side of things being untapped. So they went through the traditional side. They went through the media side, they went through the they didn't build production. Actually, I know a few production companies, the big ones, they sort of built to serve you aware of the building through rollups. So try they trying to find efficiencies in terms of buying, buying loads from them, bulk them together really like what they call a platform. And that platform sort of enable them to drive efficiency. So what they are, what they are seeing in terms in the market is they see great assets generating good revenue, positive cash flow. And they basically figure out, okay, right, we can make money out of this. We just need to bring some level of digital. We've seen this across other, other industries where profitability came in, where they sort of came in and the assets that they can see a profitability. And probably one of the key things that they notice, inefficiency, is how they run the business. They feel that actually they can do a better job and they can take more money. And so that's why probably you're seeing a rise in terms of the production and events point of view, where they feel that actually they could do a better job through by being better operators of their business. So, so really the PE firms, you know, they actually see the event production companies that others might be missing. What do they see. And you're kind of mentioning the idea of scale as, as they get scale that might create value. What are your thoughts on that? Yeah, I think basically one of the key elements where we have the event side of things is it sits outside, actually sits outside. In terms of the event side of things, we're seeing a big shift in terms of behaviors where people actually are appreciating more events more than anything else. So the big events, what you have like let's let's look in terms of best in UK, but you guys are based in US. Super Bowl is the big thing. Everybody watches anything else. Nobody watches anything in terms of it, in terms of sports, similar to events where events unable to get people, get people connected. And I think one of the key things where we've seen from the technology point of view is basically creates this kind of fragmentation in terms of usage, people are getting together. So events is a good space to basically bring people together. And the same time go back to your to your to initial question, there's a huge money to be made. So they see a opportunity to basically create a series of events. Actually so few I'm sort of you guys are fans. Shark Tank have you guys are fans of Shark Tank? Oh, of course Shark Tank is is is it's like royalty in the United States. I mean, with Mr. Wonderful and Mark and and the others that are on the host. Yes, absolutely. Everyone wants to be an entrepreneur. So if you actually go back to to to Shark Tank and you see Mark Cuban, actually some of the big investors he made actually was events. So there was actually one events company based in California where basically he bet I think he bought it for 2 million for 20%. And so basically within events company and these rationale, if you basically watch the episode actually and he basically rationales actually events going to be the future of people getting together events in the future because people actually are getting bored and basically they want to share experiences. So events and we are seeing that basically a big shift into sports and a big entertainment. This is the places where Coachella people are coming together. And similarly, the situations from the from the business point of view when people come together are basically business events. That's where people come together. For example, now we this week we have possible Miami, where all the industry is coming together in Miami. So that's where the point of contact in the next in June, we're going to have cans, everybody from around the world coming together. So events is actually not only doing that, but at the same time, because there's this kind of gap, they can actually charge significant amounts of money. So there is a huge amount of money that could be mad. Yes. Within the event side of things, there's a lot of things that you can control because in terms of you can make huge amounts of money and you can actually build some level of connectivity across other parts of the business because you can build other streams. One conversation that I was having quite recently with events companies in, in Europe is that they don't realize what they have. The potential is, is basically because some event companies, they do the consumer side, some of the business side, the business side, when they do that kind of internal employee functions or business or thought leadership. Most of the times they actually talking to sea level, talking to the CEO to arrange the event itself. They don't realize that that kind of access they have is quite unique. Know very few companies out there go access to sea to sea level. So there's an opportunity in terms of knowledge generating revenue but sometimes reaching decision makers. But at the same time building this kind of support. The other thing that basically what I'm talking about in terms of as an opportunity, there's a gap within companies of actually doing running events by themselves because they don't know what to do. It's too complex. They don't have the set up. And I see probably private equity looking at this and saying, actually, we can make this more efficient, we can generate more revenue and basically manage costs in the most efficient way. If we can build a roll up that's buying loads of different companies share costs between our businesses, then we can have a higher margin. So this is how they're saying, well, what you mentioned, there was so much there to unpack. The first, the shared live experience is never going away. And especially when you think about what happened during COVID, we were all locked up and people want to go and have experiences. And we are fortunate as a technical provider to work on so many of these large events and send out the lighting and the sound and the video and the LED screens to go participate in these shared live experiences. So I agree with you that that is like a cornerstone. And I think what you said is the PE firms are pretty smart people, so they're going to try and find a way to make money in our industry. And and they're going to either try to scale or try to cut costs or try to find those efficiencies. So let me ask you this question. Will the consolidation of the PE firms buying all these production companies and the mergers, will this actually improve the client experience for the customer or will it commoditized it. Because you mentioned there we're going to try and cut costs. And you know, I mean what's your opinion. Because I don't necessarily have the answer. And yes is a difficult part of it. We actually we sing this actually, we're seeing across all the various industries are providing works in terms of they don't they extract instead of adding value, they add value when they see they can multiply their returns. So in order to stand that we need to understand how it works. Right. Probably the good to basically they will best buy funds and funds basically have a time limit. They need to they need to raise capital through investors. Investors put money into the pot. And they basically the private equity of the general partner. Then what tends to do is the right now I have a pot of money. I need to go and buy businesses, okay. And there's a time limit. So meaning that that person needs to buy needs to buy businesses in a specific time frame and bring returns. So how property equity makes money. It makes several ways. But basically the main the main two ways is the management fees. So basically they're very loud normally tends to be by around 2% for for the fund. And they do exits. Right. So the exit side of things tends to be we call carry fee. So basically they need to hit the specific targets in order to meet specific targets in terms of profitability. Then it makes they need to run inefficient shop. Inefficient shop means that they need to decrease costs in order to increase the maximum return. So so so so how does that answer my question? Will the client be happier or more commoditized or they won't even know clients? Basically, in some degree. Some of them, they like efficiency. They like automation. But at the same time, one of the key things that probably they're going to be so happy is that there will be less people, they'll be more focused in terms of driving outcomes and driving value back to the fund and basically be profitable. Of course, the private equity is keen to to keep retain customers. They will try everything, every single thing. But one of the key things in implications for clients is when a private equity comes in, is they're not going to stay there forever. So there's a time limit to that relationship. To my point earlier. So means that in the past you used to have probably your business or other businesses that basically you have a relationship for 10 or 15 years with you. That's not going to happen with a private equity, because basically, one of the other things that probably does, to your point, in terms of being happy or not, is if performance is not to the to the standard they are looking for, they can change. The CEO in the majority tends to change CEOs within the first two years, I think. I think I read the stats about 51% of CEOs after being acquired by private equity is basically are replaced. So what that means for trying for a client is you don't have continuity, the person, you have a relationship with them if they're not performing, not leaving the value to the business. Even though you have a great relationship, they are being more likely to be removed. I got you. Well, let me ask this question. Okay, so. From a client's perspective, will they do they care or matter if the agency is PE based or independent? Because there's a lot of independent owner operator agencies, does that actually matter or a client's just looking for a relationship and an outcome. They want to put out great shows and have great experiences for their audience. Yeah. In some what what are we saying from other industries is unfortunately, they don't care. They don't. Okay. All right. Well let me then my next question then my next question is when we look back at this time in the production world, because I have seen more mergers and acquisitions, I've read more about them in this time period than I have in a very long time. Will this change be considered good or bad for our industry? Yeah, yeah, basically I think I think it's bad for an industry. I think if the moment you have you don't have I think the key elements of a good business is maintaining a culture, telling a story and basically something they can rely on. If you basically have someone just basically what the way I put it in a simple terms, instead of buying a house, you're renting it. Someone's coming in, renting it for a period of time, but you know they're going to be living soon. And if I can B&B, they're going to be reliving soon, someone else going to be there. So in terms of I think it's bad because it doesn't provide some continuity. If you have working under a private equity firm or build a relationship is not easy for employees, it's not easy for for clients because you don't know. Even if you invest in a relationship, invest in that kind of business. You don't know in terms of that same business going to be the same in five years time. Because basically, going back to my point earlier, everything is about generating returns. It's not about keeping clients happy is how much money can you extract from that business, because this is how they're going to get well. Well, I just want you to know they must love our industry because they're investing a lot of money in it. So there must be some great opportunity there. I would say if you go in the Wayback clock, this would probably be about between 10 and 15 years ago. It seemed like a lot of the technical companies like us were being bought, that what I would call asset heavy businesses. And when I think about agencies that produce shows and put out amazing products, you know, as far as their their work, they they don't have a CapEx. You know, they're a CapEx light business. So that's very attractive. Whereas a company like artists, we got to spend millions of dollars on equipment every year. So, you know, to grow. And so I was going to say, will the smaller, more boutique production teams thrive when you consider they have to compete with the larger production teams? I'm just curious what your opinion is to that. How will the smaller companies compete against the bigger ones, and what do you think the market will look like? I think one of the one of the traditional strategies in terms of private equity that we've seen from other industries around marketing side is they're trying to squeeze you out completely first because they won't increase the market share. So basically they're very aggressive. And basically they can undercut you because they know that if they undercut you for a period of time, you're going to want to have cash. So you don't have the ability to compete in the future. So they know they have deep pockets. So one of the key situations that they tend to do is like basically we call the roll up so they can buy a lot of different things to a point about in terms of cost. One of the key things probably they are looking at at is the production side of things is basically instead of each company production company buying loads of equipment, they basically can buy once and share it across the various business they buy. Imagine if they buy five production companies and buy the best product, the best equipment, and they basically share it across all the five businesses so they have the utilization. Well, what I have seen are mostly companies that don't have equipment, the agency model that doesn't have equipment. And and they're sharing their human capital. And there must be something to this. So when we look back in five years time, will we see this as a bubble with all the acquisitions? And it bubbled up. Will there be fewer agencies or more agencies? Because I know there's a cycle. And you've been involved with a lot of acquisitions of agencies and and so will there be more or will we will we go back five years from now and there'll be a lot of smaller boutique ones and then and the big ones, of course. No, we actually seen from the from the agency side, we actually seeing the emergence of boutiques. So smaller shops were basically becoming more specialized because what we have is sort of like a different grades of people. I think we what we actually seeing from the event side of things is like the three, the four areas sort of emerging one, a big group of companies that are very, very big and that dominate the space. Then actually then we have a second group that probably the private equity backed. So people that is a companies we know they're going to be lean aggressive. Then underneath that we have the emergence of a collectives of agencies probably events going to basically okay. Right. We can't compete with those guys. Let's get together and share things and work together in collaboration. And then we're going to have the rise and put techs. Yes, the boutiques are probably going to emerge because basically they become going to become more personal, more caring. Basically, they're going to dedicate is more focused on the relationship in the long term value creation versus short term value creation. So we're going to see a different dynamic. The challenge you're going to have from the private equity side of things to my point here, at some point they need to exit. They need to sell that someone needs to buy. So the question is who's going to buy it? So who's going to buy those assets when that front comes to an end. So the question you need to have a healthy ecosystem where those assets, those big acquisitions that happen now they are looking for strategic buyers. So the question is normally what you have is three exit points. One, do they sell it to a strategic buyer. So basically someone that doesn't have basically events or production companies into the capabilities assets is going to integrate as part of the big. The bigger structure two normally tends to be like an IPO. You need to be big in order to get to the IPO side. But the IPO market has to be down, so nobody is doing it. The third option that's basically some of them are moving into this direction is called secondaries. So the secondaries means that they realize actually we had a newly traditional fund between 5 to 7 years. And they realized actually we can we haven't reached to the to the master. We want we they sort of raise a secondary fund that is aligned to that. They doesn't extension of 3 or 4 years for to make sure that the sort of to achieve their goals. Yeah I got it. So so let me ask this question. I always say that we're a business of relationships, and I have to imagine the agencies, which are the ones that come up with a creative. This is not things that we do that those relationships are the ones that are dealing with end clients. And that's what clients want consistency year over year. They want to have a similar team or the same team produce their event. And so, you know, it's interesting. I think any company that's able to retain their staff and and keep whatever their brain trust together, I think that has value. And and that gives them a leg up to retain the customer as long as they're putting out great work, great creative and great ideas. Do you agree? Yes, I agree. I think the key thing about it is my advice for companies in that stage is relationships are key. But I think you need to take to the next level, to the relationships. You need to care. You need to basically go the extra mile. You need to basically do a little bit more because basically you're going to you're going to be competing with someone is going to be probably using all the best what they know in terms of make it work. So is if you have strong relationship making, make them stronger. If you basically is making sure that if you create great events, make them extra special. Make sure that basically you build those kind of relationships and attention to detail that sometimes you people overlook. Because basically, one of the key things that profit equity company is going to be doing is trying to be fish. And so basically, if you focus on the other parts of it, okay, efficiency is great. But at the same time, if you build on top of that, not only being efficient, but at the same time have stronger relationships and build that kind of continuation of value as an exchange, you're going to have a solid. But again, it's making sure don't take anything for granted. Don't take relationship for granted, because in situations like this that you need to think about that sometimes you're going to be in situation when you put your proposal out for your specific event, someone's going to come and undercut you. They'll try to undercut you. So the question is, what are the levels that you have that you built? Could be simple things. That is touch base with your client more frequently. Just engage with them, understand their business well and the same in terms of their needs in a different way. Things that basically private equity will basically will look because they're going to be trying to save money. So so this is kind of my last question, okay. And my last question is about AI and agencies. Will that become what you say something about a reduction of force or reducing the staff? Will AI become a component within these agencies and allows them to find the efficiencies that you're mentioning? And will AI become this thing for, you know, I don't know, creative ideas? I mean, we work with so many different people and they have so many different approaches. Obviously, we always like to do amazing shows that are thought, wow, really well. And they, they, they tell the message and they wild the audience. But will because of how you've described these cost efficiencies, will AI become a thing like you see on the news right now, how companies are cutting their staffs because of AI? Will that become a thing for agencies in the future? And so how they become more efficient and thus how will that impact the ability for them to deliver these amazing shows that these production agencies do? One thing for sure, provide equity will use automation and an AI as part of that. So I think my advice for the traditional people that know be on equity is find balance, the right balance between the two. Terms of having the relationship focus, like you mentioned, has, but at the same time use AI or use automating the right places, but at the same time, keep your identity, keep your positioning, and keep basically what makes you special. Still you but use identify parts of your business where technology, automation, AI could actually help and make things easier. Like I said, it's not being completely AI. Business events or production company is finding that kind of special areas where could be. I that can help and facilitate the way you work and is less about replacing in my view is about augmenting the experience of meeting the current employees is how can you make our employees live a better work using our. But still, they're going to be the the pilots of the of the of the relationship. Well, I I've got to tell you today I see the whole approach in a very different light from before we started our conversation. I, I understand as you've described, and I'm sure there's different PE firms that have some variation of, of whatever your description was. But at the end of the day, we're in the business of delivering the show and someone has to produce it and has to make the content and has to make some creative idea. And, and we are the part of the, of the wheel that facilitates making the lights and the sound and the cameras. And it's just going to be very interesting to see how this continues to unfold and how the landscape changes or doesn't change. As you describe, people are going to want to exit or try to find their new buyer or, you know, or as you said, a secondary. These are things that are, you know, quite an interesting discussion about a subject that, you know, it started off with. Well, there's a lot of activity, a lot of mergers. Some are different, different pieces of the industry that are, you know, one's a labor company and a production company and, you know, there's there's different pieces of this puzzle. But quite an interesting insight. And I'm sure I'm sure what you said is probably the the plausible outcome. But we will have to wait and see. And I thank you today for joining me today. And this is Les Goldberg and The Road Ahead. And Ivan, great job and thank you for sharing your amazing ideas and knowledge with our audience. Thank you very much for having me.