Listed companies are tricky. Investors can be so fickle and quick to pick holes in well-worked strategies they once eulogised. Any loss of support depresses the share price which can, ultimately, defeat a company’s strategy. Investment analysts are forever looking for the tell-tale signs that a corporate transformation may not succeed, even while the CEO exudes confidence in their brilliant strategy.
CEOs everywhere are painfully aware of the dangers of a post-Covid world which will wreck some companies that would have succeeded in better times. Nobody can doubt the potential for exhibitions companies to fail during a year when their market has been decimated. Other casualties may include ambitious companies whose transformation is disrupted by recession.
That’s why some analysts are starting to whisper about Ascential Plc, the company once known as EMAP and, briefly, The Top Right Group. The UK-based B2B group self-describes as “a specialist information and analytics company that helps the world’s most ambitious businesses to win in the digital economy”. It has three main operating divisions:
Product design – The 22-year-old WGSN is the leading provider of market intelligence, inspirational images, information, and trend forecasts to the fashion and design-led industries from household goods and consumer products to cars. It has some 7,000 subscriber companies in 90 countries where its total 70,000 users include designers (probably half the customer base), CEOs, visual merchandisers, buyers, and marketers in major retailers and brands. Companies which appreciate just how fashion, colour and design trends influence taste in everything from cars to technology pay an average of £10k each for the privilege of “knowing what’s next”. WGSN’s reputation is based on its role as the world’s best-known fashion trend forecaster but it has diversified into beauty, lifestyle and interiors, and (last month) into a forecasting service for food and drink. Some 65% of its revenue already comes from outside the fashion market. WGSN increased revenue by 11% last year. 2019 Revenue: £86.5m ( 21% of Ascential) EBITDA: £36m (28%)
Marketing – This division comprises the MediaLink consultancy, WARC advertising data business – and Cannes Lions which claims to be the world’s largest advertising, digital and creative event. Founded in 1954 and acquired for £52.2m in 2004, it (usually) takes place each June in Cannes. Winners receive the coveted Lion trophies. Revenue in Ascential’s Marketing division in 2020 is forecast to be a mere 30% of last year because of the event’s cancellation. But it is reasonable to believe that an event which belongs to an era of advertising agency supremacy, egregious waterfront entertaining, and mass gatherings may face headwinds even when Covid recedes. MediaLink was acquired by Ascential in 2017 for $69m upfront (with an earn-out potential of $138m). The company was built in the image of its ubiquitous founder and CEO Michael Kassan and always looked a curious acquisition for Ascential. It is believed to have significantly under-performed. Kassan’s grand claims to operate at “the intersection of media, marketing, advertising, entertainment and technology” sound a bit hollow, although his reputation for hosting the best parties at shows like Cannes Lions and CES is not disputed. 2019 Revenue: £135.9m (33%). EBITDA: £50.7 (40%)
Sales – The division comprises the Money 20/20 fintech exhibition (whose three events in Asia, Europe and the US, are facing cancellation this year), Retail Week, and – under the Edge brand – fast-growing e-commerce analytics companies including Flywheel, Clavis, and OneClickRetail which had been acquired for an initial $44m in cash. It enables subscribers including Procter & Gamble, Unilever, Nestle, Panasonic to track their online performance. The company is strongest in the US and Western Europe but says: “If Amazon is there, we are”. 2019 Revenue: £158.4m (38%). EBITDA: £39.6m (31%)
Ascential’s non-core building and planning data businesses (with brands like Glenigan, Groundsure, and DeHavilland) generated £17m of EBITDA from £35.4m of revenue in 2019. A high-value subscriptions group – even if it doesn’t fit.
In 2019, Ascential Plc had revenue of £416.2m (6.4% organic growth) and £128.5m EBITDA (a 31% margin). Its revenue was derived from digital subscriptions and platforms (52%), events (33%) and Advisory (15%). Half of the revenue came from the Americas, 37% from Europe and 11% from AsiaPacific. Its top 100 customers accounted for only 32% of revenue.
According to a UK broker this week, the exhibitions industry crisis will reduce Ascential’s aggregate revenue from its Marketing and Sales divisions by 32% to £200m in 2020. That would mean EBITDA of just £24.9m from these two divisions – down from £90.3m last year.
It’s tough times for the company that (as EMAP) had been acquired in 2008 by APAX private equity and The Guardian newspaper for a dizzy £1.3bn: more than 20x 2007 operating profit and 6x the revenue. For the buyers, the timing was awful and coincided with the cliff-edge for print advertising – and the global financial crisis.
But 12 years and much portfolio churning later, Ascential still has a market cap of only £1.2bn. Even before Covid, the three years since the 2016 IPO has not brought much good news for Ascential investors.
It has had relatively modest profit growth during 2016-19 (7% CAGR). Its pe multiple of 14 is unchanged since IPO (and compares with 22 for RELX and 55 for YouGov, for example). For all the apparent ambition, Ascential has yet to become a high-performing company.
That plain truth is emphasised by its earlier decisions to:
- Buy back 10% of its shares, a tax efficient way of returning “excess” cash to shareholders
- Pay a 2019 dividend equivalent to 48% of free cash flow and 30% of earnings per share
While such shareholder strategies will now be impacted by Covid, investors routinely regard them as signs that a company: a) has few acquisition or investment options and b) needs to give shareholders more income to compensate for the lack of growth in the value of its shares.
Those are the realities behind an Ascential strategy that has been all about ditching profitable but low-growth exhibitions and magazines, and reinvesting the proceeds in apparently high-growth digital assets. That’s the gamble, and the signs are that at least some of six acquisitions made in the past four years may be under-performing.
Ascential paid upfront a total of £274m to buy One Click, Clavis, MediaLink, Brandview, Flywheel, and Yimian. These businesses are primarily in the highly-competitive digital e-commerce space and have substantially increased the group’s dependance on US revenue.
It has paid out some £50m on earn-out payments so far and expects to pay a further £103m in the next two years. Significantly, these deferred payments are much lower than expected: less, in fact, than 50% of the expected earn-out just for Flywheel, the Amazon-centric service provider for which Ascential paid $60m upfront (12 x PBT). It’s also not much more than the deferred payout expected for Clavis, the lossmaking e-commerce analytics startup which had been acquired for $119m upfront (9 x revenues).
It, therefore, seems likely that Ascential over-paid for some of the newly-acquired businesses.
It’s a high-wire act for CEO Duncan Painter who has transformed the company in the past nine years. His was a far-sighted appointment of a data-savvy executive to a traditional B2B publishing and events company, albeit with some strong information services.
The man who jokes that he was a better rugby player than student approached his task without fear. He had originally been steeped in ‘retail is detail’ as a systems manager at Dixons electronics retailer. That was his life-lesson in the vital role of technology and customer service. A move to Hitachi catapulted him into general management.
Next, he joined a database start-up which, in 1999, became the ClarityBlue MBO. He sold it seven years later to Experian, the UK-based global credit services group. In his thirties, Painter pocketed some £15m from the £85m sale and became a senior executive of Experian which morphed into a joint venture with Sky TV. He became managing director of the customer intelligence unit Sky IQ, which powered the growth of the pay TV’s 10m+ audience and built an ancillary business with external energy and financial customers.
It was great prep for the job at Ascential, which he took on in 2011, when the company was still known as EMAP and owned by private equity. Although it owned WGSN and other data businesses including auto price service CAP (which Painter promptly sold for £175m), EMAP profits were still dominated by B2B magazines and retail exhibitions which were beginning their slow, longterm decline almost everywhere.
It is notable that only four of the 11 people in Painter’s top team come from a media background which reflects his belief that publishing companies are wrong-headedly obsessed with delivery rather than developing must-have content which meets the needs of its audience: “If you can work out what is the critical information your audience needs, when and where they need it, then the delivery question will answer itself.”
This CEO’s data background has equipped him well to re-think B2B media. For companies like Ascential, the word ‘data’ means two things: the high-value information and business-critical insights they sell to customers; and also the behavioural stuff that helps the information providers themselves understand their customers’ needs. The virtuous circle is completed by data enriched with that of these same customers.
For new-world media companies, real-time data on customer behaviour is the antithesis of old-style, hit-and-miss advertising-marketing. Print-centric brands – even when they remain profitable – can distract and weigh-down a company whose future lies elsewhere.
That is why Painter sold his B2B magazines to Metropolis, Wilmington, and GlobalData and its trade shows to Hyve (ex ITE Group) in deals which have funded his digital acquisitions. The fact that Hyve’s current market cap is less than the £300m it paid just for Ascential’s UK trade shows, and Metropolis had a wobble with the 11 magazines for which it had paid £23.5m may confirm the smarts of Painter’s divestments. Together with the £19m Wilmington paid for Health Services Journal and the £14m GlobalData paid for Middle East Economic Digest, Ascential netted a total of £356m (10 x EBITDA) from its unwanted legacy. Wow.
But it comes back to how Ascential has invested the proceeds. Painter has a clear strategy and his annual report has a strong narrative. But the story of Ascential seems to be:
- WGSN, a world class, subscriptions-funded research company which might be worth £760m (20 x £38m EBITDA in 2020) – 75% of Ascential’s total value. An ambitious investor could accelerate WGSN’s growth with acquisitions: Edited, Innova, Mintel and others beckon
- Two events (Cannes Lions and Money 20/20) which may simply never recover their former glory – or profits – in a post-Covid world
- Pricey e-commerce analytics firms which may come through and prosper from – or may pay the price for – their dependance on the mighty Amazon. Flywheel Digital was said to have shown exceptional growth in 2019 but the others must now out-perform, not least to compensate for the erosion of the company’s events
- Building policy data services which are for sale (sometime) for perhaps £200m (12 x £17m EBITDA in 2019)
The athlete Duncan Painter is in a race to win the hearts and minds of his investors by showing that his high-priced digital acquisitions can outpace the never-ending competition in a buoyant online retail market. Solid success across e-commerce analytics really could transform Ascential’s profitability and investment prospects. It might also enable the company to divest the rest of its unwanted assets – and make some transformative acquisitions.
But you keep coming back to WGSN which had been (bravely) acquired for £140m (20 x operating profit) way back in 2005. It is tempting to observe that this highly-attractive global business shares few competitors, skills or resources with its Ascential neighbours. Is WGSN one great business surrounded by a whole lot of ‘work in progress’ that now risks being upset by Covid?
It is ironic that the same virus outbreak which has rocked Ascential’s profits is changing human behaviour everywhere in ways that may make WGSN’s global trend forecasting even more valuable.
The other irony is that it is 13 years since the global financial crisis forced the breakup of EMAP Plc. Stellar performance across magazines, newspapers, radio and B2B media had thrilled shareholders for decades. But, when performance faltered (spurred by unwise investment in the US…), the group’s breakup became inevitable. Like its legendary predecessor, Ascential has some great brands, people and resources. It also has a CEO you would bet on. He just has to make it all work. Or else.
Additional reporting by consultant Alex DeGroote