Ascential Plc, the UK-based information and events company, will be the perfect business school case study. Starting life as the B2B division of the legendary EMAP Plc, it has seemingly done everything ‘right’. As the web shredded traditional media, the listed company divested its UK-based magazines and exhibitions and invested the proceeds in international digital information services, especially in the rapidly-growing world of e-commerce optimisation.
Its five divisions now comprise a range of activities. But profits of each of the four “mature” divisions (the first four, below) are generated primarily by individual, flagship brands, as follows:
- Product Design: the trend forecaster WGSN
- Marketing: the Cannes Lions Festival
- Financial/ Retail: Money 20/20 fintech trade shows
- Digital Commerce: including Flywheel, Edge and Perpetua
The justification for retaining the Cannes Lions Festival and Money 20/20 was carefully constructed: they were much more than mere exhibitions. In practice, they were relatively fast-growing brands rather than the slow-growth trade shows Ascential had sold-off. A similar fudge was at work in the retention of the authoritative Retail Week and its World Retail Congress (part of the Financial/ Retail division dominated by Money 20/20).
Given the high-quality of many of these assets, it seem almost churlish to comment on the minimal synergies between them. The separate operations may share little more than an involvement in ‘product’, ‘marketing’ or ‘retail’. In good times, it was a reassuring spread; in tough times, fickle investors are challenging the strategy. But it was all looking so good in 2019 when Ascential reported 19% growth, both in revenue and profit, and encouraging early signs from the launch of Edge e-commerce analytics. But we know what happened next.
The pandemic reminded investors that, for all the emphasis on information services, Ascential profitability still largely depended on its two remaining, flagship events. 2020 revenue crashed to £264m – 31% behind the previous year – and the £29m of EBITDA was 74% down. But the fledgling Digital Commerce operations still grew revenue and EBITDA by 25% and 85% respectively as Covid turbocharged online retailing. With the WGSN Product Design business, it boosted digital subscriptions revenue by 11% to £208m (79% of the total). In 2021, CEO Duncan Painter doubled down on Digital Commerce, investing more than £350m in premium-priced acquisitions in pursuit of his big, bold strategy.
It is 11 years since EMAP’s then private equity owners appointed Painter, a high-achieving tech executive who had been managing director of the customer intelligence unit which powered the audience growth of Sky, Europe’s most successful pay TV group.
His trademark has been (more or less) to sell any business that got in the way of the strategy and to invest the proceeds. It has been an inevitably high-wire act of divesting low-growth and acquiring high-growth. But Painter has been good at selling. His unwavering focus on strategy – and the globalisation of the company – has consistently won the support of investment analysts. In 2016, 38% of Ascential’s revenue came from North America and 33% from the UK. By 2021, this was 53% from North America and just 11% from the UK, with strong growth in Asia (15%). But shareholders have long been voting with their feet: the Ascential share price has decreased 40% so far this year and is 44% below its £153m ‘pandemic-funding’ equity placing of 12 months ago.
This week, the foundations shook again.
Ascential reported double-digit revenue growth for all its divisions in the first-half of 2022, with some notable highlights:
- Digital Commerce: underlying growth of 19%; Product Design: +14%; Marketing +88%
- Cannes Lions Festival, held in person for the first time in three years: revenue up on 2019
- Money 20/20 Europe: revenue +30% on 2019
- Total revenue: £261m (+69%), EBITDA: £67m (+57%
You could sense the CEO’s relief as he told investors: “Ascential has had an excellent first half of the year, with strong growth in group revenue and profit in line with expectations. We are making good progress with our mission to make Digital Commerce the number one, global real-time platform that powers e-commerce…”
Analysts mostly liked what they heard, especially about Digital Commerce and the post-pandemic rebound in events. But shareholders themselves saw things differently and the shares this week lost some 15% of their value. The company now has a market cap of £1.1bn and has not paid a dividend since 2019.
The share sell-off will not have surprised the stoic CEO. But the optimistic words could not disguise his nervousness over the detail below the headline numbers. There was the widening £35.1m operating loss due to a series of “non trading” items including £33.2m for “transaction and integration costs”, a £31.4m write-down in the asset value of the Edge Digital Shelf platform, and a bad debt charge of £3m.
These individual items, in aggregate, seemed to convey a sense of increasing strategic risk. It was underlined by the disclosure that this year’s c$200m commerce acquisitions of the Singapore-based Intrepid E-Commerce Services and Sellics, of Germany, added some 20% to the headcount and incurred losses of £7m in the first half of 2022.
Intrepid had been said to give Ascential “an entry point for our Digital Commerce business into the fast growing South East Asian marketplaces, expanding its global footprint in this important region for e-commerce. Our clients are always searching for ways to access the next billion consumers and South East Asia e-commerce provides a clear pathway to them over time.”
The maximum total consideration payable for the acquisition was capped at $250m. But the five-year-old, lossmaking company had a mere $17m revenue in 2021 and is not forecast to start paying for itself until 2025.
The footnote to this week’s half-year results contained another quiet warning. Ascential said the same two acquisitions “increase the complexity of our integration activities and adds to the work to be done to bring the systems of control in these small and developing businesses to the standards required of a listed company.”
After five years of acquiring early-stage, innovative and frequently lossmaking analytics companies, this was an unmistakeable warning that things are getting tough for Ascential, despite the improving forecasts:
| £m | 2023 (e) | 2022 (e) | 2021 | 2020 | 2019 |
| Digital Commerce | 272.5 | 218.7 | 147.3 | 103.1 | 78.1 |
| Product Design | 109.4 | 102.3 | 91.3 | 88.1 | 85.7 |
| Marketing | 99.1 | 94.4 | 56.5 | 54.3 | 135.9 |
| Retail/ Financial | 74.2 | 70.7 | 54.2 | 18.2 | 81.1 |
| TOTAL REVENUE | 555.2 | 486.1 | 349.3 | 263.7 | 380.3 |
| TOTAL EBITDA | 137.4 | 114.1 | 88.9 | 28.5 | 109.0 |
Total EBITDA profit in 2022 is forecast to get back to the pre-pandemic 2019 level. But the real headlines is that Digital Commerce became the largest revenue in 2020 and is forecast to achieve the largest profit in 2022 (47% of total revenue and 49% EBITDA)
For 2021, Ascential had reported a 44% rise in revenue to £349m and £89m EBITDA (2020: £22m). Digital commerce ‘pro forma’ revenues had grown 33% and marketing revenues had almost doubled. The company was as euphoric as you could safely get in generally troubled times:
“Despite the current macro-economic uncertainty, all our businesses are well positioned to drive the success of Ascential now and in the long term, as we continue to invest to extend our market leadership and maximise our future profitable growth. Our ability to execute our strategy, combined with structural growth in our end markets and the success of our Cannes Lions and Money20/20 events – whose revenue exceeded 2019 levels – underpins the Board’s continued confidence.”
But something else is happening.
In March this year, Flashes & Flames forecast the breakup of Ascential and a possible US listing for a de-merged Digital Commerce division. A few weeks later, the company confirmed that breakup plans were being investigated. At this week’s results presentation, CEO Painter confirmed the exploration was still underway – and some millions of pounds has been expensed in the process. So it’s serious.
There are plenty of reasons to regard the 11 years of Ascential under Duncan Painter as a success, even though few CEO’s ever want to reduce the scale of their enterprise or be pushed into the divestment of businesses they have quite literally grown to love.
The 24-year-old WGSN is a perfect illustration of how the one-time B2B publishing company has been able successfully to expand a product that is very far from the traditions of magazines and trade shows. What had been known as the Worth Global Style Network was acquired by the former EMAP for £140m in 2005.
Over the last four years, WGSN has grown revenue by 31% and EBITDA by 53%. The profit margin has also been pushed up from 38% to comfortably over 40%. But it’s even better than that. Just eight years ago, it generated almost all its revenue from its core fashion market. Today WGSN’s dependance on fashion has been reduced to 55% by successful expansion into consumer tech, interiors and food & drink.
The worldwide market leader now gets 90% of its revenue from subscriptions and 10% from consulting. It has 450 employees, 7,000 customers and claims a retention rate of 90%. That’s why some of the world’s major consulting companies have long been watching WGSN.
That’s also why WGSN, as Ascential’s most profitable single brand, could be worth more than two-thirds of its entire market cap – and 50% of the newly-formed Intelligence & Events division:
| £m (2022 forecast) Ascential Intelligence & Events division | Rev | EBITDA* | P/E | Est. value |
| WGSN | 102.3 | 44.2 (43%) | 15-20 x | £663-884m |
| Cannes Lions / WARC data | 94.4 | 37.4 (40%) | 10-15 x | £374-561m |
| Money 20/20/ Retail Week | 70.7 | 19.6 (£28%) | 10-12 x | £196-235m |
| TOTAL | £267.4m | £101.2m | £1.2-1.7bn | |
| % of Ascential total | 55% | 89% | 100%+ |
These estimated profit multiples are not wild because so much of the revenue is subscriptions. WGSN and the major events Cannes Lions and Money 20/20 really might be expected to attract EBITDA multiples of more than 15x. All three of these business units (above) are currently forecasting EBITDA growth of 5% in 2023. With revenues recovering so well for Ascential events, it seems possible that their multiple may even break the previous peak trade show price of 20 x EBITDA. If so, the two marquee events (especially Cannes Lions with its high-value mix of subscriptions, high-value awards and accreditation) might actually attract total bids of some £1bn.
Digital Commerce, meanwhile, is forecast to have 2022 revenue / EBITDA of £218.7m and £12.9m respectively, with growth of 25% and 83% touted for next year. If listed on a US stock exchange, this high-growth business alone might attract a valuation of some 6-7 x revenue – especially if it scales up with another major acquisition. There are plenty of premium-priced prospects in the US which would help to turbocharge the strategy and ensure a premium rating for the business. But, even without transformative M&A, the de-merged division may be worth £1.5bn. It promises to be a great reward for Ascential shareholders who have been worrying that the current competition (and price pressure) from VC-funded analytics startups will just keep on coming.
Add it all together and you might just have a breakup value of some £3bn.
With talk of recession and geopolitical panic, the Ascential board needs to choose its timing carefully. But, with clear indications that the proceeds of breakup could be as much as 3x its current enterprise value, private equity firms and others are knocking on the door. It’s getting louder.
It’s almost exactly 15 years years since the breakup of the former EMAP Plc gave shareholders a better-than-expected £2.3bn payday. History may be about to repeat itself.
