The activists have been active in the first few weeks of the year. Following-on from US hedge fund, Saba’s attack on seven investment trusts earlier this week, AIM-listed market research agency YouGov LON:YOU finds itself in the crosshairs of Gatemore Capital Management, a London-based fund manager.
More specifically, it’s YouGov’s CEO, Steve Hatch, that has stumbled into the firing line with Gatemore’s chief, Liad Meidar calling out the boss of the polling agency in a public letter, accusing Hatch of being directly responsible of “numerous missteps” and “[…] poor operating performance under his leadership.”
- EnSilica shifts bets to high-tech, high-value markets
- Saba Capital decisively defeated in two more investment trust board votes
- Cohort expands global reach Down Under with new acquisition
Hatch has only been in the job for a year-and-a-half. But in that time Meidar claims that he has overseen “staggering underperformance”, where YouGov’s shares have lagged the FTSE 250 by 67 percentage points and AIM by 56%. Meidar blames him for an inability to budget effectively, which led to a period of stagnant growth and a significant profit warning in 1H24.
Gatemore: ‘Poor communication’
Meidar also thinks that Hatch is a poor communicator – not a good look for an agency involved in the business YouGov is – and instead of damping-down speculation and panic following the profit warning, made the situation more confused by declining to hold an investor call following the announcement. This, said Gatemore, was compounded by a “lack of strategic clarity” with Hatch offering: “no clear guidance on the path to achieving the mid-term targets of GBP650m in revenue and a 25% operating profit margin.”
Gatemore said: “In short, the current CEO’s first 18-months at the helm have been a disaster, and we believe the market has lost faith in his leadership. We must not allow YouGov’s extended period of operational underperformance and share price stagnation to persist, as it would further erode what is left of stakeholder trust and impede a successful strategic review.”
In December, the board of YouGov awarded Hatch a grant of 221,476 nil-cost options and conditional awards priced at 2p equivalent to 220% of his base salary.
In the company’s last results, published in November for the year to end-July, YouGov reported year-on-year revenue growth of 30% to GBP353.3m, which was slightly ahead of the guidance management advised in August. However, despite one of the busiest election years for a decade, including a hotly-contested UK General Election, YouGov’s operating profit was only up 1%. The company attributed this to higher pensions contributions. Adjusted profit margin was down 400bps to 15% as a result of weak sales momentum during the year and higher levels of staff and technology cost in 1H24.
YouGov’s shares opened the week (13th January) at 380p, 66.4% behind where they were this time last year. The company’s shares ranged between 367p and 1,285p over a 52-week period. The company has a market cap of GBP435m.
YouGov to be taken private?
Gatemore owns about 1.3% of YouGov and it’s long-term plan is to take the company private. The investment manager likes the business, emphasising its historic robust cash flow – on average 70% operating free cash flow conversion for the past five-years; its strong growth record between 2014 and 2024 – with an average 17% revenue growth and average 31% EBIT growth; and its respected position within the market research industry, boasting a register of 29 million panellists across the globe and its syndicated data strength.
However, it’s clear from the scathing public letter, Gatemore is not keen on Hatch. They propose he is immediately replaced by founder Steve Shakespeare, who established the business in 2000 and stepped down for Hatch in 2023. Shakespeare is currently YouGov’s non-executive chairman.
Gatemore also argues that the AIM market is sickly, and for YouGov to be lagging the index, to recover and then outperform AIM is too much of an ask. Instead, Gatemore (with Shakespeare at the helm) says it is wiser for shareholders that YouGov sells out to a strategic investor or finds a financial sponsor.
Meidar reckons that if the business ditches its current management and reorganises itself, it could seek a sale price of more than 700p, just shy of 85% more than what the shares are worth today, and still be in shape to make 3x multiple returns over five-years.
For a company that incessantly asks questions, YouGov has not provided any public answers to Gatemore’s criticism to date. This is the first shot across the bows, and may not go any further, However, at the current pricing, an investor could make a handsome profit should Gatemore get its way, and this will no doubt run on for the whole of 2025.