The UK-based £1.5bn B2B information and events group Ascential Plc has acquired the four-year-old US-based Flywheel Digital, a provider of data services and software to consumer product companies trading on Amazon.
The company self-describes as “a collection of experienced practitioners focused solely on Amazon. We have spent years deconstructing the Amazon machine to provide your team with actionable insights that translate into sales.” Its 70+ customers mostly comprise large-scale US consumer product companies, and it has 90 staff in Baltimore and Seattle.
Ascential is paying an initial $60m plus an earn-out based on revenue for 2019-21 which is expected to pay-out in the range of $47m-$196m. Total consideration is capped at US$400m. In 2017, Flywheel grew its revenue by more than 150% – but delivered pre-tax profit of just $4.8m. Analysts are expecting PBT of some $9m on revenue of c$30m next year.
Ascential (which grew out of the former Emap Plc‘s B2B media and exhibitions) is being praised by investors for a robust strategy which has artfully combined the sale of non-core but soundly profitable magazine brands and exhibitions (even at prices which diluted profits) with cherry-picked (and sometimes high-priced) digital acquisitions.
As if to reinforce the disciplined mix of organic growth alongside the steady stream of acquisitions, the company last week launched ‘Edge by Ascential’ to provide its 500 brand and retail customers with e-commerce performance data.
Ascential Plc is expected to make EBITDA profit of some £135m on revenue of £400m in 2019. That 30%+ operating margin (compared with 25% this year) would be the reward for CEO Duncan Painter’s gutsy strategy which sees a once UK-centric group get about 50% of its revenue from the US and only 20% from the UK. Good timing.
The next strategic test for Ascential could be to decide whether its high-value retail information services really fit with its global events portfolio (including the wobbly but huge Cannes Lions and the turbo-charged Money 20/20). Now that information services are more than 50% of the group’s revenue, it remains only for them to close the EBITDA gap on the higher-margin events. But, surely, that will happen over the next 2-3 years as the acquisitions kick in. Perhaps the soaring price of exhibitions and festivals (up to 17 x EBITDA) has already given Painter some ideas about what transformative data-tech businesses he could buy with proceeds that could so nearly match Ascential’s total market value. The equally acquisitive Informa and Blackstone may already be sharpening their pencils.