The world’s fastest-growing magazine-media group Future Plc, of the UK, confirmed this week the success of its £140m acquisition of TI Media with stunning results. But the dramatic news was trumped by its own recommended £594m bid for the listed GoCo Group, owner of the UK price comparison site GoCompare. Future aims to embed price comparison into its print and digital brands. The deal should complete by March 2021.
GoCompare lists prices for services such as car and home insurance, mortgages and financial products. It’s more similar than you might think to Future’s growing e-commerce role offering tests, choices, and the chance to buy technology and gadgets.
The 14-year-old GoCo, which demerged from insurance group Esure four years ago, has been transitioning into subscription-based services where it switches subscribers “automatically” whenever a better deal becomes available. This AutoSave service more than doubled its customers (and increased overall revenue by 13%) in the last nine months. The whole programme underlines how GoCo has become a technology company – like Future itself.
The GoCo transformation has been witnessed close-up by Future’s CEO Zillah Byng-Thorne who has been a non-executive director of the company since 2017.
The audacious bid surprised investors which sent Future’s share price down by more than 15% on Wednesday. It came on the day Future reported 2019-20 revenue of £339.6m (+53%), operating profit of £93.4m a(+79%), and net debt of £62.1m.
The £79.3m of e-commerce revenue (23% of the total) emphasised the way Future has been able to monetize its expanding portfolio at a time of accelerating decline in magazine advertising and copy sales. Significantly – as the company promotes its readiness to take on GoCo – it has increased the total web traffic of TI Media’s biggest sites by 11% in just four months. The tech-centric media company is developing a track record for speedy integration and quick results.
The digital revenue also shows how GoCo can fit into a Future business model that has come a long way in the few short years since it was all about magazines. During 2016-2020, its earnings per share have had a compound annual growth rate of 71%.
News of the media company’s largest acquisition was still a shock, even though it came four months after investment analysts had greeted, with knowing smiles, its appointment of Goldman Sachs as broker. They just knew it would mean a big step-up in acquisition activity. And it has.
Investors were rattled by the proposed GoCo acquisition because:
- It’s only seven months since the acquisition of TI Media
- The price is 22 x 2019 operating profit and a 23% premium to the share price
- It seeemed left-field
It’s true that publishers themselves have been slow to connect with price comparison strategies, even though magazines-radio group Bauer Media has, for the past few years, been expanding its own network of such sites in Scandinavia, Eastern Europe and Spain. It had been expected to use its market-leading radio network to acquire or launch price comparison sites in the UK (as it has done in the Nordic countries). But Future has got there first.
Many investors, trying to predict where Future would go next, had not considered the extent to which price comparison sites are moving towards a subscription model or their similarities with existing e-commerce operations.
The strategic fit is not only reasonable, but GoCo’s challenge of getting surprisingly apathetic Brits to switch suppliers to get lower prices could be unlocked by Future’s large and fast-growing audience of homeowners online and in print. That’s, presumably, what Byng-Thorne has been thinking as she has soaked up the GoCo strategy across the board table these past few years.
Peter Wood, founder and outgoing chair of GoCo, says the deal will “dramatically” reduce the cost of reaching new customers: “Traditional marketing is very competitive and you are always at the mercy of the latest offer from rivals,” he said, explaining that GoCo would be able to tap into Future’s 45% of UK online consumers. It’s a valuable endorsement from one of the UK’s most successful entrepreneurs who will become a 6% shareholder in the enlarged media company.
The acquisition may give a few other clues to the future of Future:
- Given GoCo’s £90m marketing spend (including TV advertising), we might expect that Future’s growing TV production capacity will prompt more ideas about video streaming and even broadcast channels, especially in the homecare sectors where the company now has a powerful, connected group of magazines, digital media, exhibitions and e-commerce.
- Given the way the Future CEO learned all about her latest conquest, we might speculate on other thoughts from board meetings. One of her fellow non-executives at GoCo is the very digital Nick Hugh, CEO of the Telegraph Media Group. TMG is the quality UK news brand that has had, arguably, the most experience with e-commerce and also has strong vertical content in the kinds of special interest topics Future likes best. It’s also successfully shifted the business model from casual newstand sales to print and digital subscriptions. And it’s for sale. The Telegraph’s Barclay family owners might expect a call from Future next year.
- Future’s dramatic growth highlights its dependance on Zillah Byng-Thorne, the high-performing CEO with no visible successor. But, if this deal goes to plan, Future may have found the solution: Matthew Crummack, CEO of GoCo for the past four years. He has a shiny CV stretching across marketing giants Proctor & Gamble and Nestle, and digital stars lastminute. com and Expedia. He’s good on marketing, technology, and as CEO of a listed company. If Crummack passes the test, Future may have all the bandwidth it needs to make yet bigger moves into major media – if they can keep him.
Future shareholders can be forgiven for getting jumpy about another big deal so soon after (and so much larger than) TI Media. It’s not without some risk, of course. But GoCo really may be a prime opportunity for the ambitious UK company which is re-defining ‘media’. Buckle up.