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Future’s surprise GoCompare bid

Why is a magazine publisher trying to takeover a price comparison website?
Future’s surprise GoCompare bid
  • Digital media company Future has put in a bid for GoCompare's owner, GoCo
  • The move will strengthen its position as a consumer advisor, but might attract the attention of the Competition and Markets Authority 

Future (FUTR) is first and foremost a magazine publisher, presiding over niche titles like cyclingnews and techradar. This might suggest that it does not make a natural fit for a tie-up with GoCo Group (GOCO), which owns price comparison website GoCompare. But the publisher has been rapidly transforming into a more digital operation, led by a number of other strategic acquisitions and a growing online readership.

In 2020, Future bought TI Media, Barcroft Studios and CinemaBlend and reported strong growth in its online audience numbers to push operating profits up by 90 per cent to £50.7m in 2020. Thus, although the buying spree pushed up net debt by more than half to £62.1m compared to last year, the company's net debt to Ebitda (adjusted cash profits) multiple sat at a comfortable 0.5 at the financial year end. 

Management is therefore confident that the company can afford its £594m offer for GoCo, which values the target company's shares at 136p, or a 23.6 per cent premium to the closing price the day before the deal was announced.

In Future’s view, the addition of GoCo’s expertise in price comparison and proprietary technology, combined with their ‘intent driven’ content, should help them to meet consumer demand for better-informed purchasing decisions. The acquisition also raises questions about the longevity of the company's current revenue model - digital advertising is a highly competitive market which is dominated by Facebook and Google. Even DMGT (DMGT) - owners of the hugely popular Mail Online - has struggled to drive significant revenue growth from online advertising. In a week that the Investors Chronicle has learned that IG Group (IG) is cutting its marketing team, the outlook for online ad sales is murkier than ever, Future's expansion therefore looks very sensible. 

But Future is not offering a particularly generous premium to GoCo shareholders - especially given that the price comparison group has had a good year on its own. Its new automatic switching service, AutoSave, more than doubled its customer base in the nine months ended in September, which boosted overall revenues 13 per cent to £131m.

With the potential of this long-term growth driver in mind, there might be some hesitation among  shareholders to accept Future’s offer. Indeed, given the recent talk of consolidation in the price comparison market (spurred by reports that Admiral Group (ADM) was considering selling its unit), it is possible that a competing offer could land from bigger industry peers. But analysts at broker Jefferies suggest that the Competiton and Markets Authority (CMA) has previously made it clear that it views UK price comparison as an effective market, which introduces some level of risk to the bid. Still, Future would make a reliable enough parent to GoCo, and the price comparison website would certainly strengthen the group’s own online proposition. Await documents.