There are more than 60 million self-directed investors in the U.S. by one count. That retail crowd is only getting more active and, well, invested in their investments. For those interested in going beyond their social media feeds for actionable advice on how to make their money grow, there is a cottage industry of newsletter writers, commentators, and analysts who sell access to their insights on a subscription basis.
Beacon Street Group wants to be a giant in that field. It, and announced a deal to go public via a merger with
Ascendant Digital Acquisition
(ticker: ACND)—a special-purpose acquisition company, or SPAC—on Tuesday. Investors shrugged off the deal, sending the SPAC’s stock down 6.3%, at $9.92, just below its trust value of about $10 per share.
SPACs, a kind of blank-check company, raise money from initial public offering investors. The money sits in a trust until the SPAC’s sponsors negotiate a merger with an operating company to take it public. SPAC shareholders can redeem their shares for their trust value at the time of the merger closing.
The company has a portfolio of 12 brands in investor research aimed at a broader range of readers than just the institutional-investor crowd. Its most recognizable subsidiary is likely
Empire Financial Research, with other brands including Chaikin Analytics, InvestorPlace, and TradeSmith. All promise the likes of “hedge fund-level insights” for individual investors.
Beacon Street says it has 160 different products under its dozen brands, which include research and software tools focused on macro investing, growth stocks, trading strategies, cryptocurrencies, and more. The company says it had more than 10 million subscribers at the end of 2020, of which about 860,000 were paying customers.
It has grown quickly through a mix of organic growth and acquisitions in the past few years. Revenue has climbed from $238 million in 2018 to $377 million last year, with management projecting $651 million in sales in 2022. Adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, went from $79 million in 2018 to $127 million in 2020. Management has forecast Ebitda of $284 million for 2022.
Beacon Street is a digital subscription business, with hardly any variable or incremental costs to adding a new subscriber. Nearly all of its cash flow—99.8%—flows through to profits.
Its business model is shaped like a funnel, in which people who read advice for free are encouraged to subscribe to an entry-level product, then a higher-priced one or other complementary products, and so on. There is also an opportunity to bundle products from across its brands. Subscriptions range from about $200 annually to more than $30,000.
Beacon Street says that 6% of its free subscribers end up signing up for a paid product. Over the three years from 2018 through 2020, 37% of those spent more than $600, and a further 31% of that smaller group spent more than $5,000.
“We were looking for a company in the attention economy with scalable, digitally delivered IP,” says Ascendant Digital’s CEO Mark Gerhard. “As people say, ‘content is king.’ But it’s rare that you find a company that’s as prolific at creating new IP …They’re like the
[NFLX] of financial content.”
Gerhard’s background is as an executive at videogame developers and cybersecurity firms, including a term as CEO at Jagex—the parent company of the hugely popular online fantasy game RuneScape. He and another member of the Ascendant Digital team will join Beacon Street’s board of directors once the merger closes.
The transaction with Ascendant Digital values Beacon Street at about $3 billion. Deal proceeds include about $414 million from the SPAC’s trust, in addition to $150 million from a private investment in public equity, or PIPE, deal at $10 per share.
But most of that doesn’t go to the company: After expenses, Beacon Street will get about $150 million in cash, while shareholders who are selling will get $374 million.
It can be a red flag for SPAC deals when the company going public is using the transaction more to let shareholders cash out than to raise capital for growth. That point may have contributed to the pressure on Ascendant Digital’s stock on Tuesday.
Beacon Street’s existing shareholders will still own about 80% of the postmerger company. Ascendant Digital shareholders and PIPE investors will own a combined 18%, and just over 2% will go to Gerhard and the SPAC’s sponsors.
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