July 19, 2022

Euromoney To Be Taken Private and Split Into Parts

Whether the economy is in a bad place or not is irrelevant for some investors in the take-private market. Things are still happening. According to FT, Euromoney is being taken private by Astorg and Espiris, private equity firms (contingent on shareholder approval):

The deal values Euromoney’s shares at £1.6bn and gives it an enterprise value of £1.7bn. That is about 21.5 times its earnings before interest, tax, depreciation and amortisation for the year to September 2021, a relatively high figure for a buyout deal.

Under the deal, Astorg would take control of Euromoney’s Fastmarkets division, which provides price reporting for raw materials such as wood and metals. Epiris would take its other divisions, the asset management business which includes publishing its Institutional Investor magazine, and the financial and professional services arm that runs the BoardEx and Wealth-X information services.

There’s a lot to dissect from this.

The first is why it happened. According to FT, Euromoney had rejected four lower offers from the private equity firms. Ultimately, it had to ask itself whether, “taking into account the economic and geopolitical uncertainty in the world, the board could be confident of delivering enough value quickly to shareholders compared with the certainty of a sale at a good price now.”

Ultimately, speed does matter. Euromoney is not a fast-growing asset and has significant hiccups. For example, in 2019, revenue was £401.7 million, with a solid 30% coming from events. 2020 hit the company hard, with revenue coming in at £335.3 million due to a £70 million loss in event revenue caused by Covid. In 2021, revenue grew to £336.1 million. Essentially, flat. And in 1H 2022, it reported revenue of £184.6 million, which would suggest over £360 million in revenue if 2H was equal to the 1H. The business is recovering slowly.

The other why has to do with the type of business Euromoney has become. Recall that Euromoney generated about £120 million of event revenue in 2019. In 2021, it only generated £60.9 million. That’s because subscriptions are becoming a much more critical part of the business. In 2019, only 60% of revenue came from subscriptions. In 2021, that was 70%. In 1H 2022, that’s 73%.

The pivot to subscription has made Euromoney a much more appealing business to investors than the risker events business. Ultimately, investors like the predictable and renewing revenue that comes from subscriptions over the new sell every year with events.

And we can see that appeal in the price paid. The FT says that Astorg and Espiris paid 21.5x Euromoney’s 2021 EBITDA. According to FT, this is 33.5% above Euromoney’s valuation before the announcement. So ultimately, the company had to ask how quickly it could get that much value for investors.

It would have had no concern if we were in a robust economy. Euromoney had a plan that calls for high single-to-double-digit revenue CAGR and an adjusted operating margin in the mid to high 20s%. But if the economy does get worse, could it miss those targets? Suddenly, a 33.5% premium doesn’t look so bad.

Interestingly, the two private equity firms are splitting the business. Astorg is taking Fastmarkets, which generated £85.4 million in 2021. Epiris is taking the FPS and Asset Management divisions, which collectively generated £248.2 million.

There have been other deals this year too.

In June, News Corp completed its acquisition of Base Chemicals from S&P Global Market Intelligence. It paid $295 million for a business with nearly 100% digital revenue and recurring with “high margins.” In February, News Corp also completed its purchase of Oil Price Information Service from S&P Global Market Intelligence for $1.150 billion, which was approximately 19x adjusted EBITDA.

These deals are also perfectly logical, too. Once you have a subscriber, you can attempt to upsell them on additional products. It’s ultimately a capabilities game, and if you have the correct products, you can turn a smaller revenue client into a larger one.

The fact remains, that there’s demand for financial data products, and whether it’s News Corp’s Dow Jones or Euromoney, these assets will have value. The question is: who is next?

A look at Piano’s benchmarks

Piano powers many large subscription businesses, giving it quite a bit of data. And each year, it releases a benchmark report that provides insights for those building subscription businesses. This year is no different.

A few things are worth exploring.

Friction: As I have written, friction is a significant problem on media sites. We can see that in the data. The click rate on subscription offers on mobile is 1.46% and 1.53% on desktop. While this is remarkably close, the conversion rate of desktop users is 42.4%, whereas mobile is only 19.7%. For users on mobile, a bad UX can be the difference between a user paying or not.

Registration: According to Piano, over 40% of users who register (but don’t pay) end up paying subscribers after the first month. In reality, getting a user to register is a way to keep them coming back. And, since they’re already registered, it’s fewer steps to get them to pay when they do hit something they want; this is an example of reducing friction.

But there’s an even more significant point. Known users (those who have registered) are 45x more likely to convert to a paid subscription than someone anonymous. Knowing who someone is means you’re able to target an offer specific to them better.

Sleepers: According to Piano:

As the chart above shows, sleepers comprised over 40% of subscribers for the average subscription website.

It makes sense that sleepers churn. They aren’t getting much value from their subscription. Yet they don’t churn right away. In any given month, 90% of sleepers will simply continue to stay inactive. It’s only when they wake up and come back that their cancellation rates soar, generally accounting for about 30% of active churn.

The hard work with a subscription business starts after you get them to pay because now you need to keep them engaged. And that can take a lot of work.

The entire report is worth looking at. I would recommend comparing your numbers to what Piano reports to see if you have any differences. It’s important to remember with these businesses that you’re always working to acquire new subscribers and keep your current ones. It’s a constantly marketing exercise.

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