Turnaround Cases: Premier Exhibitions Part 2 ($PRXI)
OK, what is the deal with Premier Exhibitions. How a company that caught the imagination of some value investors can fall from grace so swiftly. This is not only out of curiosity: understanding the history helps to understand the turnaround complications. We can never be completely sure, but let’s try our best to play Sherlock Holmes and build our case.
Premier Exhibitions basically created the business of running museum quality exhibitions. There have been some other local exhibits and one hit wonders, but nothing similar in number exhibits or geographical scope. And not only that, it was very successful.
The pressure to grab the opportunity without an organizational role model might have lead to ad-hoc decisions. Here is a list of some of the growth initiatives the company was seeking in 2008 just before the downfall:
- Increase Bodies Exhibits: From 6 in 2006, to 8 in 2007 to more than 17 in 2008. Arnie Geller decided to bet the future of Premier on one concept. It is clear that there was demand but he was risking to kill the golden goose by overexposure.
- Permanent Exhibits in New York and Vegas: In 2008 closed a lease for 36,141 square feet of space within the Luxor Vegas and they were looking for years for a venue in New York City (Times Square). This Luxor lease was for a five year period with an annual rent close to $3.6 million (!)
- Self-run Exhibits: after several issues with some of the promoters, JAM in particular, they decided to take the promotion of several exhibits in-house. The economics of running exhibits should be favorable for Premier, but were the additional organizational needs and complexity, not just the costs, taken into account?
- Three New Concepts: According to management they were working on nine exhibition concepts, and they announced and launched three of them in 2008: Dialog in the Dark, Sports Immortals and Star Trek. It is clear that Premier’s privileged position, with access to museums and promoters worldwide, was a center of attention for entrepreneurs with interesting concepts.
- Internationalization: Premier added several exhibits running around the world. The complexity of moving and controlling exhibitions internationally can not be over estimated. At the beginning most of them were with partners that managed and promoted issues locally. After they run into problems with some of these partners Premier decided to run some of the shows itself with mixed results.
- Merchandising and Corporate Sponsorships: Premier was and is doing a mediocre job in alternative sources of revenue. They finally decided to buy a merchandising firm for close to $1 million. This was the pet project of Bruce Eskowitz the CEO that replaced Arnie Geller at the end of 2007.
Besides the obvious organizational complexity, this plan included significant capital expenditures: $12 million for Luxor Vegas, $6 million for Dialog in the Dark, $6 million for Sports Immortals and $4 million for maintenance.
Arnie Geller’s big idea was to achieve all this by bringing new management. Brilliant man eh? The new CEO Bruce Eskowits lasted less than a year on the job. His package only matched his previous compensation in Live Nation, but it was a heavy burden for a small company. He had a $312 thousand salary but with awards and bonuses his total compensation was over $3 million. Just as a reference he received $1M cash bonuses in 2007 and 2008. He also brought in an expensive executive team that probably matched what he used to have in Live Nation.
But still with this, this is a really small company. We don’t have hundreds of employees. It’s a small head count, and we’re trying to be very focused on what we do. It’s just physically impossible to go from two products and 20 exhibitions to 40 without adding a few people who can support it. Unfortunately, we’ve got to get revenues to catch up to the G&A – Bruce Eskowitz July 9, 2008
Build it and they will come? Individually, all the growth initiatives seem not only plausible but attractive. I run some back-of-the-envelopes and, if well executed, all of them would probably be very profitable. However, if you have not been paying attention let me put it in black and white
- New customers (tourists in Vegas and New York)
- New products (not one but three new concepts: Sports Immortals, Star Trek, Dialog in the Dark)
- New geographies (not one but two new continents: Europe, Latin America)
- New channels (not only proprietary locations but also malls)
- New capabilities (merchandising)
- Forward integration (promotion)
- New management
And all that at the same time! My background is in growth strategy and turnarounds (let’s leave out for the moment how I became a value investor) and never before I have seen such an ambitious plan, for lack of a better word.
This is the type of plan that can only be the result of irrational entrepreneurial will. The plan was to do everything that was in Arnie’s mind at the same time. No focus man.
I am all for experimentation: new businesses have to try new things to find their edge, old businesses have to try new things to renew themselves. But resources are limited, organizations have constrains, markets are competitive, and cash flow is king so if you do not pay attention to these realities you have:
- Contradictory goals
- Wasted resources
- Unfinished projects
- Outsized organizations
- Mediocre financial results
So from the get go, I am putting the burden of evidence on former CEO Arnie Geller. He was the entrepreneurial force behind all those initiatives and his was the plan even before Eskowitz arrival (than lasted for only 10 months). Besides he controlled the company through the Board of Directors.
More expenses, fewer sales? The perfect recipe for a great business. Can you identify the entry of the new team, when it was fired and Arnie Geller’s second coming? I bet you can.
This little experiment burned $20 million in cash and left Premier at the brink of collapse. You need the discipline to shut down your best ideas, Arnie Geller and Bruce Eskowitz were not capable of doing that. Premier looks too much like the pattern of a one-man rule. Confirmatory evidence would be a disorganized culture and organization. That is what we are going to review next.