The UK listed Ascential information and events group continues to pursus its planned strategy of selling its WGSN forecasting platform, listing the digital commerce division in the US, and leaving the UK listed company with the events Cannes Lions and Money 20/20.
But the process, first announced in January this year, may have been delayed due to disappointing bids for WGSN. Many investors had expected announcement of the WGSN sale during August.
Ascential has been careful to avoid commenting on WGSN valuations that have ranged up to £1bn. But it is believed that the company’s plans – to pay a special dividend to shareholders and also ensure development cash for the two listed companies – were predicated on a sale price of at least £700mn. It is now believed that the highest bid may have been about £550mn, although the company is said to be negotiating individually with bidders trying to push up the offers.
Ascential’s current £1bn enterprise value has consistently been at least 50% below almost any “sum of the parts” calculation, especially if WGSN is priced at, say, £750mn as once seemed likely. The recent share price performance (28% down in the past six months) seems to reflect the apparent disappointment at the problematic WGSN sale.
The fact is that the whole three-pronged strategy depends on the sale of WGSN. But, if it is sold for, say, £500mn, shareholders may receive a special dividend – after paying down debt and tax – of only £0.25 per share (ie 12% of the current price). Some shareholders had calculated that a notional £1bn sale would have led to a shareholder payout of more than £1 per share.
So what went wrong?
The WGSN auction may have been impacted by the weak stockmarket and rising interest rates. Of course. But it is believed that some would-be bidders (including probably Hearst) were deterred by what they saw as the reduced quality of WGSN earnings.
Arguably, this is a view of WGSN’s diversification of revenues away from its previous dependence on (and near monopoly of) the fashion forecasting market. In recent years, the diversification into food & drink, beauty, interiors and tech (which together now account for 45% of total revenue) has been seen as strengthening the business and creating new opportunities for growth. But some would-be buyers have come to see it differently. WGSN. which has all but monopolised the fashion forecasting market, is now seen to be competing with some larger incumbents in its “new” consumer product areas – and to depend on them for continuing growth.
The challenge for Ascential now is how best to deliver on the strategy embraced by its board and senior executives while still rewarding shareholders with a special dividend that compensates them for a lacklustre share price performance these past few years. A disappointing sale price for WGSN risks upsetting shareholders – and the prospective listed companies in the US and UK will be short of development cash at a time of unpromising times on the stockmarkets. The digital commerce business (£300mn revenue) will be a tiny IPO for NASDAQ. And the £200mn-revenue events business might not be as appetising for UK shareholders as for other trade or private equity buyers.
That’s a big risk.
A disappointing WGSN sale price (less than £600mn?) might put further pressure on Ascential’s share price – and might even force the company to consider the one alternative strategy it has so far not contemplated: the sale of its £200mn revenue UK events business. Whatever else, you may be reasonably sure that the highly-rated Cannes Lions and Money 20/20 would be able to command 12-18x EBITDA (about £1bn) at a time when private equity has renewed its enthusiasm for a fast-recovering exhibitions market. That much may clear.
Ascential faces a situation that seemed unimaginable just six months ago, when CEO Duncan Painter said: “We have seen potential buyers’ positive reactions to the possibility of owning WGSN and expect the full sales process to commence in April.”
Now, the company has three options:
First, it can stick with the plan. Full steam ahead. Second, it could postpone execution of the whole strategy for at least 12 months or until the markets improve. Third, it could sell the events and/or everything else.
Tough choices for Ascential’s first-half financial announcement on 22 September.
