Did you see that Blackstone Group bought Ancestry.com?

+11 votes
1.2k views
in The Tree House by Jana Shea G2G6 Mach 2 (27.1k points)

We had an alert to this being about to happen, yesterday.  Pretty fast from "going to" to "done deal".

"to acquire" is not the same thing as "bought"
"to acquire" is not the same thing as "bought"

I am well aware of that.  Perhaps you missed the words "about to happen" and "going to (buy, implied)" to "done deal (bought)".

There is nothing wrong with linking the previous discussion to the current one.

3 Answers

+10 votes
I saw this and I'm a little troubled by it.  Takeovers don't always bode well for customers.  I hope that we don't see efforts to maximize profit at the expense of service and features.
by SJ Baty G2G Astronaut (1.1m points)
It was already held by private equity investors, but the increased valuation in this deal increases the risk that the owners will milk the business for cash, at the expense of the business.
just a 'risk'?  please...
+22 votes

Dennis is correct in his comment that "'to acquire' is not the same thing as 'bought.'" But unless there are some very ghastly skeletons in Ancestry's closet turned up by further due diligence, I think it's a done deal. Ancestry hasn't been a public company since 2012, so there are no regulatory hurdles for Blackstone to jump over. And the only significant remaining minority stakeholder, Singapore's government-run investment fund, seems to be all-in for the deal.

Ancestry took a US$1.9 million loss in 2012 when they were acquired by a group led by the European private equity firm Permira Advisers LLP and the company was taken private. That restructured ownership arrangement included Permira Advisers as major investors, existing Ancestry management, and Boston-based growth equity firm Spectrum Equity. That deal was completed 28 Dec 2012 for approximately US$1.5 billion.

In June and July 2013, respectively, Ancestry appointed two new members to its strategic Operating Committee. One had spent 21 years at Hewlett-Packard, then nine years at Symantec, retiring as Group President of the Consumer Business Unit. The other had been President of Consumer Applications at AOL, CEO of a company called Hightail, and an advisor to Silver Lake Partners LLC (see the future Silverlake connection below).

At year-end 2015, Ancestry announced they had sold "approximately one million DNA kits in 2015; DNA kit sales more than doubled in Q4 year-over-year." A mere augury of the volume to come in the next few years. During the period 2012 to 2015 they acquired Fold3, Find A Grave, Archives.com, and spun-off their newspaper-archival component, Newspapers.com, to add to their genealogy-related online properties. The spin-off of Newspapers.com retained at least an integral marketing partnership agreement, but Ancestry seems to have begun counting separate Fold3 and Archives.com subscribers as Ancestry subscribers...if not also Newspapers.com subscribers.

There are numbers to back-up the notion that their core subscription model, the rates of converting new DNA testers to subscribers, and the subscriber churn rates didn't, at least for 2012 through mid-2019, net-out to increases that even remotely kept pace with the DNA boom. For Q3 2013 they showed 2,175,000 subscribers of Ancestry.com branded websites; as of mid-2019, they stated "Ancestry has more than 3 million paying subscribers across all its family history websites"...which would mean they were counting distinct Fold3 and Archives.com subscribers. But even if the 3 million were Ancestry.com only, that means the net growth rate of subscribers for the seven-year period 2013-2019 was a cumulative 27.5%--equating to a 3.93% annualized average--while the number of DNA tests sold grew 1,300%.

A press release appeared on 1 Apr 2016 titled, "Silver Lake and GIC Announce Strategic Investments in Ancestry." The first paragraph of the press release reads, in part: "Following the transaction, Silver Lake and GIC will hold equal minority ownership positions in Ancestry, while other current investors--the Permira funds, Spectrum Equity and Ancestry management, including President and Chief Executive Officer [name redacted] and Chief Financial and Chief Operating Officer [name redacted]--will remain as meaningful equity investors in the company and, along with GIC, will continue to own a majority of the company." Silver Lake Partners LLC is a U.S. private equity firm, and GIC is Singapore's government-run equity and investment fund.

In the Blackstone deal--real particulars of which I'd love to see, but likely never will--GIC remains the only significant minority investor, and one can't assume whether or not their participatory share stays the same or decreases, but it almost certainly won't increase. All the other equity stakeholders go away: Permira, Silver Lake, Spectrum Equity...and certainly any Ancestry management that have more than token equity. Blackstone's not forking over a total value of $4.7 billion to retain any ghosts of business past.

I'll bet a 20-spot--given the core subscription business has been relatively flat for the better part of a decade, and the golden-calf of DNA test sales climbed into the tank starting in mid-2018 as far as sales growth and projections go--that there will be a nearly immediate housecleaning of upper management once Blackstone assumes control. Other than the "lederhosen or kilt" marketing campaign, strategic planning for the company has looked tepid, at best.

Can't mention names, but the then-CEO--who had come to the company after being COO and then president of Match.com--resigned on 12 Sep 2017 with no replacement named and no defined continuity plan in place. Following, a press release stated that the chief financial officer would "assume the role of interim CEO as the company conducts a search for a permanent replacement." He remained in the role for seven months. The current CEO held that same position for a year at toy maker Mattel, and then in April 2018--purely coincidental: the very month we can point to as the start of the industry-wide decline in DNA sales growth--hung her nameplate on the door of the big corner office at Ancestry. As of the start of 2018, they were rolling in the dough. Consumers were all but throwing money at AncestryDNA, and the sales growth projections indicated that 20 million DNA test sales were realistic by end-of-year. Fast forward almost two-and-a-half years, and they've logged about 18 million.

One year ago, in August 2019, Ancestry decided to, as a Bloomberg article described it, turn "to a well-tested private equity play for taking cash out of a company: topping up on debt. [They are] looking to pull out more than $900 million from the company through a special dividend mostly funded by new borrowings. They are also seeking approval for another one-time distribution before year-end."

I don't know if the planned special dividends eventually went through or not; as a privately held firm, they don't have to disclose that. But the intent at the time was to issue a new seven-year loan to the tune of $1.15 billion: $910 million for shareholder dividends and $600 million to pay off some existing debt. The plan was then to use excess cash flow to pay down the new debt.

However, as we know, that cash flow, which looked like a shiny jewel from 2015 through part of 2018, had started to look a bit tarnished. Oh, sales and revenue were still coming in, but the growth projections had taken a nasty turn. If the 2019 deal went through, Ancestry said the total debt load would be about 5.5 times a measure of earnings. Moody's and S&P, who typically use conservative criteria for those kinds of calculations, estimated the ratio at 7 times or higher rather than 5.5. Both those two companies lowered their outlook on Ancestry.com in response to the dividend/debt plans and the slowdown in revenue growth that had been happening since mid-2018.

In fact, that Blackstone is valuing Ancestry so highly makes me believe it's possible that the 2019 "cash extraction by debt-topping" never came to fruition, or at least not at the levels Ancestry wanted.

So there's been no real stability at the very top of Ancestry for three years, and equity reliance has been on the ephemeral DNA golden calf. I won't attempt to hazard any guesses about what we'll see over the upcoming year or two, but I don't believe Ancestry will vacate its core operation: genealogy subscription services. It's a solid revenue stream, if monolithic, and you don't kill something that brings in $600 million annually with very little in the way of R&D costs and human overhead. It's essentially an IT shop and server farm.

What they're going to do about DNA, well, I could see at least three realistic outcomes, none of which I'll prognosticate about...because I'll ultimately be wrong.
wink

But I do think it's safe to say that, on the DNA front,  medical, wellness, and pharmaceuticals will be the base drivers, not DNA for genealogy. For the time being, they'll no doubt continue to sell the $79 microarray test...with probably a lot of up-sell effort to what I expect will be a whole exome sequencing option very soon. And exome sequencing doesn't really do anything at all for genealogy. That said, however, whoever Blackstone puts into the senior roles may finally hearken to our pleas of the past few years and bring Ancestry's DNA tools up to at least on-par with the competition. We see how well the business strategy of the last few years has not worked, so things will definitely be changing.

Edited: Just in case anyone might get the wrong idea, where I wrote [name redacted] was me removing a living person's name, not a G2G moderator adjustment. I'm trying to adapt...

by Edison Williams G2G6 Pilot (309k points)
edited by Edison Williams
Thanks for the information, Edison.  Veeeeryyy interesting!
Thanks Edison, I have learned more from your posts than from the various articles about the acquisition that I can find online.  I wonder how "evergreen" the Ancestry service actually is in the long run.  I've heard it described as "just a server", which I take to mean "a cash cow" that gives milk daily, for the price of hay.  Some others have said that the amount of "milk" it generates is a drop in the bucket relative to the price paid for the acquisition. Sure, the number of subscribers might transiently increase during the pandemic, but I doubt that is a long-term trend. Perhaps the acquisition is a short-term play during the pandemic coupled with a longer-term play for the DNA database.

A minor update that almost certainly played into the Blackstone decisions. It turns out that back in October Ancestry (as Ancestry Genomics, Inc.) made two 510(k) filings that cleared the FDA less than two weeks ago. The FDA information for these things are always rather vague, but you can follow the links if interested. But each was filed as a Class II medical device, and the risk assessment evaluation went through the same type of review as did the 2017 and 2018 filings from 23andMe.

Filing K192944; vague description: Qualitative in vitro molecular diagnostic system used to detect variants in genomic DNA from human specimens. Filing K192947; vague description: saliva-based DNA specimen-collection kit.

Ancestry launched AncestryHealth last October, and has been offering non-diagnostic health reports that were not specifically cleared or approved by the FDA. The fine print on the AncestryHealth information page includes, "The test results are not diagnostic and do not determine your overall chance of developing a disease or health or health condition. The tests are not cleared or approved by the U.S. Food and Drug Administration."

To get technical, AncestryHealth has been bypassing (my opinion only) the intent of the FDA's regulations and submitting these consumer clinical tests under the aegis of the Centers for Medicare and Medicaid Services' operations umbrella. Consumer orders a test online; Ancestry processes the order; Ancestry sends batch referrals pertaining to the orders to a contracted independent physicians network; a licensed physician who never has interaction with the consumer approves the order; the DNA sample proceeds to the lab as a clinician-ordered test. Not illegal, just not...fully transparent to the the consumer.

The bigger picture: What this means is that Ancestry's shift in focus to AncestryHealth has, for 10 months, had in the middle of it the expense and process inefficiency of a third-party physicians network. Full approval of these FDA filings means that Ancestry will likely exercise the option to remove the middleman and deal directly with consumers from initial order to reporting. With health, wellness, and pharmaceuticals their undoubted future focus for DNA testing, this may represent a significant cost savings. I believe it remains to be seen if these two approvals will extend from microarray testing into whole exome sequencing, but my guess is that they will. Sort of like patent filings, these things are often worded as broadly as possible.

Because of the 510(k) filings as a Class II medical devices, however, along with them will come a few new labeling requirements...the not unexpected stuff like "limited use for disease diagnosis" and instructions on how to locate and obtain a healthcare professional's advice. On the latter, it wouldn't surprise me if Ancestry chooses to establish a favorable agreement with an organization like the National Society of Genetic Counselors. I had a chance to meet and listen to presentations from some of their members at the last ASHG conference; very competent folks.

In related news... Several days ago 23andMe had its own 510(k) approval from the FDA, actually this an extension of their 2018 filing. Searching the FDA site for 23andMe is a bear because it interprets the search term as Boolean, i.e., "23 AND me". According to a report in MobiHealthNews (published by the Healthcare Information and Management Systems Society), this approval "allows [23andMe's] direct-to-consumer personal pharmacogenetics report to guide use of two treatments without the need for confirmatory testing.... According to the company, this new 510(k) removes that requirement for two medications, clopidogrel for certain heart conditions and citalopram for depression, with the CYP2C19 Drug Metabolism Report."

If I understand your last paragraph correctly, it means that is if a patient is prescribed clopidogrel (Plavix), he/she can use their 23&Me results as a substitute for a doctor-ordered P450 test.  From Wikipedia: 

Several landmark studies have proven the importance of 2C19 genotyping in treatment using clopidogrel.  In March 2010, FDA put a black box warning on Plavix to make patients and healthcare providers aware that CYP2C19-poor metabolizers, representing up to 14% of patients, are at high risk of treatment failure and that testing is available. Patients with variants in cytochrome P-450 2C19 (CYP2C19) have lower levels of the active metabolite of clopidogrel, less inhibition of platelets, and a 3.58-times greater risk for major adverse cardiovascular events such as death, heart attack, and stroke; the risk was greatest in CYP2C19 poor metabolizers.

For EU they will (probably) need to get their own certification. See eg van Drongelen et al, 2018 (RIVM 2018-0083 at https://www.rivm.nl/bibliotheek/rapporten/2018-0083.pdf) and a/the website for it:

https://ec.europa.eu/health/md_sector/new_regulations/guidance_en

With only two days left in 2020, I can now say I've been correct about a few things this year...maybe as many as five. surprise

One was this statement from uptopic:

I'll bet a 20-spot--given the core subscription business has been relatively flat for the better part of a decade, and the golden-calf of DNA test sales climbed into the tank starting in mid-2018 as far as sales growth and projections go--that there will be a nearly immediate housecleaning of upper management once Blackstone assumes control.

Since Ancestry isn't a public company, we won't necessarily know about all the changes that may have happened the past four months, or what is to come, but in a December press release the new ownership consortium announced a change in the big corner office:

Ancestry’s President & CEO Margo Georgiadis has announced that she has informed the company’s board of directors that she plans to depart the company at the end of 2020. Ms. Georgiadis will remain available for a period of time after her departure to assist in a smooth transition.... Ancestry’s Board of Directors has commenced an external search for a new CEO.

The previous CEO resigned 12 Sep 2017 with no replacement named and no defined continuity plan in place. The Chief Financial Officer assumed the role of interim CEO at that time until Georgiadis came aboard in May 2018. So come springtime, a period of 3.5 years will have seen three CEOs and two interim/acting CEOs. You can't run a company like that.

Here's hoping that Blackstone and partners vet candidates carefully and thoroughly this time. Because whether you use Ancestry or refuse to, genealogy can't afford a--if not the--major player to continue to have such a lack of stability in upper management.

A new update: Ancestry, late yesterday, announced it is shutting down AncestryHealth, the health/clinical arm of its DNA testing operation. Message from Anecstry.com here: "Ancestry deepens focus on Family History; will discontinue AncestryHealth."

That one is admittedly mostly corporate-speak, telling us how great and trail-breaking AncestryHealth was for the 15 months it existed. There's more customer detail in this support documentation: "Discontinuation of AncestryHealth."

A snapshot of what this means for the immediate future:

  • AncestryHealth will no longer be available for purchase as of today, 15 January
  • Support for AncestryHealth will continue only through July.
  • After July, customers can still access DNA matching and ethnicity reports, but access to health reports ends.
  • Anyone who has purchased an AncestryHealth kit will have until 15 February to activate it, and until 28 February to receive your sample at the lab.
  • Customers who don't activate an existing kit by 15 February will receive an automatic, partial refund.

I admit I didn't see this coming. I thought the clinical, pharmacological, and wellness areas would begin to dominate AncestryDNA's focus with the downturn of genealogy/ethnicity sales. But this is a major move, and coming as it does just two weeks after Margo Georgiadis stepped down as CEO, it's a clear indication that Blackstone is shaking things up at AncestryDNA.

The axing of AncestryHealth will result in 77 additional job losses, Bloomberg Business reports. That article also quotes Ancestry.com chief communications officer, Julie Miller, as saying, "In the context of our overall business, short- and long-term investment opportunities and consumer interest, we made the strategic, but difficult, decision to discontinue AncestryHealth."

It will be interesting to see how things develop at AncestryDNA over the next few months.

Very good to see that the two will not be linked anymore. It will be a big downer on the money side, but it will make the DNA testing itself a lot more focused (politely said).
I don't think it's a downer on the money side. It's a loss making business for them probably, given that you have at least 77 employees and a lot more investment sunk into it.

The only reason I can think of why it got the axe is that it absolutely didn't work.

23andMe is associated with DNA health reports. You don't enter 7 years later and think you can successfully sell it into your base because those interested all long bought a DNA test for health at 23andMe already.

It's pretty clear that in the last couple of years they made one bad decision after the other.

Cutting costs is one way to correct this but Blackstone as well as the investment arm of the Singapore Government (who still owns 25% of Ancestry - see: https://www.straitstimes.com/business/companies-markets/blackstone-buys-ancestrycom-for-us47-billion-as-gic-retains-stake as of 6th of Aug 2020) want profit from their investment. As in year after year.

So what new revenue stream will they come up? After they unsuccessfully tried Health and lost their sales on genetic genealogy?

I'm happy I'm not the one to answer that question. But I don't shed any tears for them, as a 3rd party DNA tool provider. Not after they send their army of lawyers after many of my colleagues with their "Cease & Desist" orders.

Bad Karma ;-)

Ancestry.com has hired Deborah Liu from Facebook, where she led Facebook's Marketplace product group. Ms. Liu comes in to replace Margo Georgiadis as CEO.

Appointed as chairman of the board for Ancestry was Mark Thompson, former president and CEO of The New York Times.

Let's hope one of Ms. Liu's priorities will be to roll back the disastrous change Ancestry recently made to the way "hints" are reviewed in member trees. Who thought that was a good idea?  frown

+6 votes

Here is the link to another discussion about this on WikiTree:

https://www.wikitree.com/g2g/1084633/blackstone-to-acquire-ancestry

by Tommy Buch G2G6 Pilot (313k points)

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