Using Logic to find the ideal match for eHarmony
2. the Match Group evolved by a “roll-up” acquisition strategy. The greatest premiums paid to tar-gets occur on the front end, when a “roll-up” is still a gleam in the eye; at the back end of the roll-up line it is a sadder story. By the time of the third or fourth brand acquisition, intent on ac-cumulating financially well-performing mass, the acquirer has a well-developed formulaic ap-proach to purchase price that is intended to acquire low and, after owned, trade high. IAC/Match is into double digits on acquiring online dating companies, apps, and brands. Excep-tions to the formula to pay a premium based on some factor, even an iconic brand, are harder to justify to shareholders. Selling to IAC/Match is equivalent to selling to a financial buyer – proba-bly a reliable sale if antitrust concerns can be overcome – but not a sale for the full value it would take eH shareholders to part with their company. Thus, we see that the online dating industry is not as large in terms of viable prospective buyers as the number of brands would suggest: lots of brands, but not too many independent owners to whom eH might make a significant difference. If we suggest that at any given time eH might account for 9% to 10% US mar-ket share, and IAC/Match brands have captured approximately 75% market share, then are there any other prospective acquirers with a strategic rationale for paying full value? The next essential factor we consider is the financial qualification of the remaining independent mar-ket players, other than IAC/Match, to pay full value. We have already discussed the limiting factor: business model. Most of the independent players in the market today do not use subscription busi-ness models because they are targeting Generation Z and Millennials passing through the dating age sweet spot, or, if they are trying to field a subscription model, they are not at a scale that would sup-port an acquisition crossing the threshold of nine figures at which the shareholders of eH hoped to sell. Most of the new hot players are launched to attract the dating age population. Think Freemium and Advertising business models that require a big load of upfront investment to attract users before enough are aggregated to be monetized for their data, for advertisers, or for a significant fraction to pay for premium functionality. The private equity firms that invested in these companies are operat-ing by a different set of rules and monetization expectations and are not going to lay out premium money to buy a modestly growing, mature, subscription business that for legacy reasons was more heavily weighted with baby boomers. We return to the primary organizing theme: To whom -- with close enough value proposition, busi-ness model, and brand affinity, yet at a size where eH makes a significant contribution, and financially qualified to pay full value -- do we add the most of what they do not already have? To answer this question, ask another one: What DOES eH have that others might not? Except for out-posts in the UK and Australia, eH’s primary business, and brand recognition, is overwhelmingly US-based. Are there any companies that might otherwise fit on the already identified dimensions that have no significant US presence? Are there any companies to whom what we offer is a highly additive US geographic and US brand recognition footprint? Yes, there are, specifically, Spark Networks SE and Parship Elite Group. These are the two companies we engaged to acquire eHarmony.