By Shuishan Xiao, Anthony Borgese (UPenn) and Kritika Venkateswaran, Sreeja Mamillapalli, Aman Singla (NYU)
On August 5th, Blackstone announced that it would spend $4.7B to acquire Ancestry, a leading online family history business. Blackstone will acquire a majority stake in Ancestry from its current private equity shareholders, including Spectrum Equity, GIC, and Silver Lake, among others. This transaction represents the first control acquisition for Blackstone’s eighth vintage of its flagship private equity vehicle. Blackstone hopes that amid the later stages of the COVID-19 pandemic, customers staying at home will increasingly turn to services such as Ancestry.
Ancestry has more than $1 billion in annual revenue and is the largest for-profit genealogy company in the world. The company operates a network of genealogical, historical records, and related genealogy websites with more than 3 million paying subscribers, access to approximately 24 billion historical records, and 18 million people in its Ancestry DNA network. Ancestry, led by CEO Margo Georgiadis, is headquartered south of Salt Lake City in Lehi, Utah.
The buy of Ancestry is the first control acquisition for Blackstone Capital Partners VIII LP which closed in September 2019 with $26 billion of capital. As part of the transaction with Blackstone, GIC will retain a minority stake in Ancestry.
Acquirer Advisor (Blackstone - Majority Stakeholder) - Simpson Thacher & Bartlett LLP
Acquirer Advisor (GIC - Minority Stakeholder) - Dechert LLP
Target Advisor - Morgan Stanley, Barclays
Debt Financing - Bank of America and Credit Suisse
Overview of Blackstone
Since its inception in 1985, Blackstone has maintained a consistently rigorous deal approval process. Everyone assigned to a deal has opportunities to speak, and this system has worked well for Blackstone over the years. Before a deal is fully considered, those working on the deal must show that it is highly unlikely that the deal will fail or cause the firm to lose money.
Blackstone has approximately $151.5 billion in liquidities which supported them in the first quarter when the company incurred a net income loss of $2.6 billion. Blackstone has incredible competitive advantage against other private equity firms because of their large access to capital and strong fundraising capabilities. The firm has adapted to the uncertainty brought about by the COVID pandemic by stating that their strategy was to invest in businesses that are “cyclically depressed, not secularly challenged”. The recent decision to acquire Ancestry.com fits with this strategy because Ancestry’s mostly successful and stable business model has been challenged by COVID, which is a non-cyclical market force.
Most of Blackstone’s money raised previously has been used to purchase companies using a strategy called leveraged buyouts. A leveraged buyout is a transaction which includes equity from the buyer and debt from the target company’s assets to meet the cost of the acquisition. Recently, Blackstone has been focused on investing in sectors that are resistant to COVID impacts. One such example is Blackstone’s recent $5.9 billion investment on a warehouse unit in Colony Industrial. The investment giant has profited from this as the demand for warehouse spaces surged since companies like Amazon expanded production to meet growing demand for e-commerce services during the pandemic. Furthermore, the investment giant is a global leader in real estate investing, with more than $6.6 billion in real estate investments in 2019.
Blackstone looks at acquiring companies in a wide range of global emerging markets. They specialise in Bottom-Up investing, a strategy where the investor focuses on the target company rather than a Top-Down approach where the focus is on macroeconomic factors and industry analysis. The biggest market they have been targeting is India, Asia’s third-largest economy as their current market situation provides a perfect opportunity for Blackstone. India’s economic slowdown along with its credit crisis is generating an increase in demand for capital from distressed companies that are providing Blackstone Group Inc. with buyout opportunities.
As of 2019, Blackstone Group LP had invested $3.6 billion in India, its record for a single year in the country. Including this investment amount, the total investments by the firm across private equity and real estate deals have crossed $13 billion in India. More importantly, earlier this year, Blackstone was instrumental in launching India's first real estate investment trust along with its developer partner Embassy Group. Blackstone enjoyed an early-mover advantage as an investor in India like many other companies. However, Blackstone was able to stand out as they showed a lot of experience and flexibility in the way it deployed capital amid the volatility in real estate and other illiquid asset classes.
“Ancestry’s large network of highly engaged users, unique content, and scaled technology platform have made it a market leader. We look forward to contributing Blackstone’s resources and leveraging our strong expertise in digital content to further accelerate Ancestry’s growth.” — Sachin Bavishi, Managing Director at Blackstone
Overview of Ancestry.com
Ancestry is the global leader in digital family history services, operating in more than 30 countries with more than 3 million paying subscribers across its Ancestry online properties and more than $1 billion in annual revenue. The company harnesses the information found in family trees and historical records to help people gain a new level of understanding about their lives from the comfort of their own homes.
The company offers family history, genealogy research and DNA testing services with integration ancestral roots and offers its records and census information on its website and through applications to individuals. It operates in the United States, United Kingdom, Australia, Canada, Germany, France, Italy, Sweden and China.
Some of the company’s services include:
Subscriptions to databases containing family archives and records
Mailed kits that allow users to discover their heritage and connect with others that may share it
Experts who will track customer’s genealogy and provide other services to help them learn about their ancestry.
“Looking ahead, in collaboration with Blackstone, we will continue to leverage our unique content, powerhouse consumer brand and technology platform to expand our global Family History business while bringing to life our long-term vision of personalized preventive health." — Ancestry.com CEO Margo Georgiadis
Upon announcing the deal, Blackstone gained 1.9% in pre-market trading. The acquisition occurred at a pivotal financial point in the Ancestry’s history. Due to Ancestry.com’s high levels of debt and hardships caused by COVID-19, Blackstone is preparing for a roughly $2.5B debt funding round in the near future to help finance its acquisition of Ancestry.com. In addition, Ancestry is preparing for a relatively aggressive strategy of recapitalization in the near future to help fund its dividends.
Blackstone and Ancestry also hope to utilize Blackstone’s large and influential international network to further expand their services into other demographics and nations. With the help of Blackstone’s funding and marketing experience, Ancestry should be able to grow beyond what is currently possible for them. This extra funding should also help them accelerate their R&D to get further ahead of competitors like 23andMe.
On a broader note, this acquisition is consistent with Blackstone’s focus on growing digital consumer companies. With Ancestry’s differentiated services that are marketed to a wide range of ages and demographics, Blackstone believes that with their improved marketing and product development experience, they can help grow Ancestry.com and improve growth in the already profitable business model.
Risks & Uncertainties
Consumer interest, amidst the pandemic, in DTC (direct-to-consumer) genetic testing has been declining as consumers have been spending less money on nonessential items. The slow demand for DTC genetic testing could be the reason for the 6% layoff of Ancestry’s staff earlier this year. If demand continues to move at its current pace, unemployment for many working at Ancestry could be imminent. However, Blackstone’s investment on Ancestry should hopefully pave the way for a more fruitful and lucrative future.
Ancestry’s biggest competitor, 23andMe provides more detail on genetic information as they test more of the DNA provided by the customer. Nevertheless, with Ancestry’s superior and robust customer database, Blackstone hopes to be able to accelerate the research and development process and expand Ancestry’s services globally.
“To effectively navigate a crisis of this magnitude, an investment firm needs two essential qualities: staying power to ride out the storm and firepower to take advantage of opportunities. Fortunately, Blackstone has both” — Jonathan Gray, President & COO of Blackstone