The pandemic will upend a lot of B2B strategies because the dislocation will change the shape of the exhibitions industry. Companies and events will come and go but some will simply be reduced by what we might call ‘flashback’. For many exhibitions, the ‘return to normal’ may take them back not to the pre-pandemic peak year of 2019 but to some years before – victims of financial pressure, lost momentum and travel constraints. In that sense, it may take years to recover fully. And even the best of the new generation of digital hybrid events may be less profitable than their exhibition-only predecessors.
There will, of course, be exceptions: trade shows that return to 2019 levels; and those which can grow strongly even while investing in digital. In national economies shrunk by the pandemic, it’s still too early to estimate the profit impact on exhibitions whose growth had been uninterrupted for almost two decades. And Government stimulus can mitigate the damage and expedite the recovery.
The lost profits will prompt some significant M&A, of course. Will the private equity firms – which own a large slice of the exhibitions industry – still be enthusiastic buyers?
It’s all a reminder that there is sometimes no choice but to reverse a strategy once adopted with so much conviction. That’s why we should watch the UK-based Ascential which has managed to buy and build impressive B2B media assets even while shifting the emphasis from print to digital, events to consulting, and the UK to US.
It is five years since the former B2B division of EMAP Plc was listed on the London stock exchange at a value of £800m and CEO Duncan Painter spun the company from its dependency on trade shows and B2B magazines to a portfolio without either. But, even after the divestments, Ascential was still profit-dependant on two longtime EMAP brands – the trend forecaster WGSN, and Cannes Lions, the world’s largest advertising, digital and creative event. Until the pandemic.
In 2020, Ascential revenue crashed to £264m – 31% behind the previous year – and the £29m of EBITDA was 74% down. It was a stark contrast to 2019 when revenue and EBITDA had each grown by more than 20%. But the company’s new Digital Commerce operations grew revenue and EBITDA by 25% and 85% respectively as the pandemic turbocharged online retailing which – with WGSN – boosted Ascential’s digital subscriptions revenue by 11% to £208m (79% of the total).
It has been something other than an anniversary celebration for Duncan Painter who has been wrestling the company away from traditional media for the last 10 years. His had been a far-sighted appointment of a tech executive to a traditional B2B media company, albeit with some strong information services.
He had joined a database start-up which, in 1999, became ClarityBlue. The MBO was sold seven years later to Experian, the UK-based credit services group. Painter 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. 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 after the breakup of the listed parent.
In the past five years, Ascential has sold its B2B magazines to Metropolis, Wilmington, and GlobalData, its trade shows to Hyve Group, and its Built Environment & Policy business to private equity and others. The £600m proceeds have funded digital acquisitions, especially in the US. In addition to increasing its value by 78% since IPO, Ascential has outperformed the average of UK listed companies by more than 60%.
At a Flashes & Flames-sponsored conference in 2019, the Ascential CEO claimed a Bloomberg-like focus on a single market. He was, arguably, over-selling the synergies of a company whose four divisions, have little in common except the ownership.
But that didn’t matter – until Covid shredded the profits.
Warren Buffett once famously said: “Only when the tide goes out do you discover who’s been swimming naked”. It is also be true that few corporate strategies can survive unscathed from global recession, war – or pandemic.
It is anyone’s guess if Ascential’s Cannes Lions and Money 20/20 events can ever regain their former glory, when they accounted for up to 50% of Ascential profit. But subscription revenues are now the gold standard of media earnings. We may increasingly choose to measure media values by the annuity income of subscriptions. In 2019, subs accounted for 60% of Ascential revenue; they are now almost 80%.
The new realities may prompt a yet bigger round of M&A by Ascential.
The sell-off might include WGSN, which had revenue/ EBITDA of £88m/ £38m in 2020. It is the leading provider of market intelligence, designs 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 70,000 users include designers, CEOs, 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 are said to pay an average of £10k each for the privilege of “knowing what’s next”.
WGSN has been diversifying into beauty, lifestyle, food and drink. It is a world-class business that might now be worth some £700m, perhaps 15 x EBITDA – or up to 50% of Ascential’s stockmarket value. Prospective buyers might include media, consulting and research companies. It could be a hot auction.
That leaves Digital Commerce whose £103m revenue was up by 32% in a market which has boomed through the pandemic. The flagship $400m acquisition Flywheel Digital provides retail and media services to brands on Amazon with an expanding presence on the Walmart, Instacart and Kroger platforms. Its scope was extended this week by the $52-160m acquisition of the Perpetua platform for purchasing ads on Amazon and other marketplaces. In the absence of a full recovery in events, the Digital Commerce division might account for 50% of Ascential revenue by 2022.
In between the tectonic plates are solid information and event assets of the kind that Duncan Painter has been consistently able to sell for more than 10 x EBITDA. But there’s more.
Ascential has quietly changed its listing category on the London Stock Exchange from “media” to “technology”. This might help to explain investors’ unwavering support for the company: despite the profit collapse, the share price has gained 70% in the last 12 months. In the UK, tech company valuations average 5 x revenue and 17x enterprise value/EBITDA; for media, it’s 3 x revenue and 15 x EV/EBITDA. The tech premium is even richer in North America where Ascential now derives almost 60% of its revenue.
Ascential’s Digital Commerce may be expected to at least reach £250m revenue and £60m by 2023. That may prompt the £1bn sell-off – of WGSN, Cannes Lions, and much else.
The UK-based company might then profitably switch its stockmarket listing from London to New York where its standalone Digital Commerce could be worth more than Ascential’s current £1.4bn – even before further investment. UK media becomes US tech. You know the score.
Additional research by Alex DeGroote