GoCo’s new owner, Future Plc, has raised eyebrows with its meteoric rise on the stock market
Briefing by Content Director Saxon East
We all remember Quindell.
To briefly recap: the share price rocketed amid a glut of acquisitions, soaring the firm’s stock market value to nearly £3bn.
Then a hedge fund, Gotham City Research, released an explosive report claiming Quindell had wildly over-stated its financials and over-paid for acquisitions.
It was the beginning of the end. The share price plummeted and eventually the business was broken up and sold off.
The fallout still looms large today with a plethora of lawsuits, fines and recriminations.
We are not suggesting GoCo’s new owner, Future Plc, will end up in such a deep mess as Quindell.
But retracing Quindell’s early history does strike some similarities to Future.
Future Plc has hoovered up 18 firms in six years, largely magazine titles in need of a digital facelift.
Helped by its rocketing share price, the media firm has used equity to fund purchases.
In February, a hedge fund called ShadowFall released a damning report.
It claimed Future had paid richly for fading assets and was getting nowhere near 11% organic growth, more like 1%.
Within a month, Future’s share price had lost more than half its value.
This brings us to the GoCo acquisition.
Unlike Quindell, Future’s share price actually recovered following the hedge fund onslaught, even pushing past its previous share price peak, before the acquisition of GoCo.
GoCo acquisition concerns
The acquisition has caused some concern among investors, with a 16% fall in share price following the deal.
Why would a magazine publisher want a price comparison website?
Future believes it can use its large digital audience to get customers onto GoCompare.
The idea is as follows: its online readers of caravans, guitars, gardening and football can be converted into using the friendly opera singer to buy cheap home insurance.
Yet it’s not a new idea and didn’t work for US media giant Scripps.
Scripps bought U-Switch for £210m in 2006. Following heavy losses, it sold off the firm a few years later at a massive loss.
The tried and tested model for price comparison websites is to acquire customers by paying Google to rank their brand high up when a customer keys in search terms such as ‘cheap car insurance’.
They also pay for expensive advertising campaigns. It’s why ComparetheMarket grabbed a 50% market share in aggregators, with its massively successful meerkat campaign.
Future shareholders will also be aware of the FCA’s crackdown on retail pricing.
Insurance firms could lose up £11bn in revenue over the next ten years, the FCA predicts, with aggregators taking a big hit.
Finally, it is not lost on shareholders that Future’s chief executive, Zillah Byng-Thorne, also sits on the GoCo board as a non-executive director.
An acquisition of convenience, rather than a sound investment thesis, is the question that haunts.
The big plus for Future is that GoCo is making solid profits, which are on the rise, in part thanks to the surge in customers using its innovative auto-quote applications.
In fact, probably the biggest driver of new customers will come from extending auto-quote into general insurance (it currently only does this for broadband/energy).
Despite these pluses, the fear persists that Future is biting off more than it can chew and this adrenaline-pumping M&A spree will end in problems.
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