Dating Websites May Be Next to Swipe Right on Breakup: Real M&A
2015-02-18 00:04:02.743 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- Where EBay Inc. and Hewlett-Packard Co. have
gone, can Barry Diller be far behind?
IAC/InterActiveCorp, the billionaire’s holding company of
websites and dating apps such as Tinder -- where singles swipe
their smartphone screens to match up with other users -- may be
among the next technology firms to pursue a breakup.
IAC, as well as chipmaker Qualcomm Inc. and online retailer
Amazon.com Inc., all contain divisions that don’t have to be
under one roof and may be more valuable if separated, according
to analysts. EBay and Hewlett-Packard shares have outperformed
the broader U.S. equity market since announcing their respective
splits late last year.
Breakups have been comprising a larger chunk of deal
activity lately, according to Gavin Slader, a managing director
in the investment-banking group at JMP Securities who focuses on
the tech industry. About 40 percent of the deal transactions his
team advised on last year involved some sort of divestiture,
versus only 10 to 15 percent in prior years. Whether the goal is
to shed smaller units that aren’t a core part of the company or
to split a fast-growing business from a more cash-flow driven
segment, it’s a trend that will continue, Slader said.
“We’re definitely continuing to see the
divestiture/breakup/spinout conversation,” he said in a phone
interview. “With some of the larger companies, you’re getting
to the point of the old industrial conglomerate, where they’re
being valued at a conglomerate discount.”
If EBay’s dual-business structure was casting a shadow over
the stock, it’s been lifted in the four months since heeding
activist shareholder Carl Icahn’s call to spin off PayPal. The
shares gained 7 percent since the company’s Sept. 30 separation
announcement.
Similarly, Hewlett-Packard shareholders have rewarded the
company for its decision to break apart printers and personal
computers from enterprise hardware and software.
Here’s why these others make sense as breakup candidates:
IAC: Besides dating services Match.com, Tinder and OKCupid, the
$5.5 billion company owns search sites About.com and Ask.com as
well as the Vimeo video-streaming business. The New York-based
company recently reorganized the dating websites and some other
properties into a unit called Match Group, which could be an
initial step toward making it a separate publicly traded
company. Diller is known to do spinoffs -- he announced four at
once in 2008 and also spun out Expedia Inc. in 2005.
IAC is working on monetizing Tinder by creating ways to
charge users, as the company has done with its other dating
properties. Once Match Group proves it can do that, the unit may
be in a better position to become a stand-alone entity --
perhaps even later this year or early 2016, said John
Blackledge, an analyst for Cowen Group Inc. in New York. He
estimates Match Group alone could be valued at close to $5
billion based on the earnings before interest, taxes,
depreciation and amortization it may generate next year.
QUALCOMM: The majority of the $117 billion company’s revenue
comes from selling chips used in mobile phones such as Apple
Inc.’s iPhone, yet the majority of its profit is generated by
the fees it collects from smartphone makers that license its
technology. There’s been talk in the past of splitting San
Diego-based Qualcomm in two, which may also alleviate legal and
regulatory challenges it’s faced. The company just agreed to pay
$975 million and give a discount on royalties due on handsets
sold in China to settle an antitrust investigation, and U.S. and
Europe authorities are also looking into the company. With the
shares down about 7 percent in the past year -- one of the worst
returns among tech stocks in the Standard & Poor’s 500 Index --
it may once again start to look like an attractive option for
shareholders.
Investors may wonder if the high-margin licensing unit,
with its recurring revenue stream, would trade for a higher
valuation than it gets today by being locked in with the chip
business, said Mike Walkley, an analyst for Canaccord Genuity
Group Inc. At about 9 times Ebitda, Qualcomm is one of the
cheapest U.S. semiconductor stocks, according to data compiled
by Bloomberg based on companies larger than $5 billion.
AMAZON: The $174 billion online marketplace may be gearing up
for a split from its Web-services unit, which has grown to
exceed 1 million customers globally. It will begin reporting
Amazon Web Services in a separate category in this year’s
financial statements, branching out from the vague “North
America, Other” group it had been lumped in with previously.
The cloud-computing service’s usage growth was almost 90 percent
in the fourth quarter, Seattle-based Amazon said last month.
PERENNIALS: Microsoft Corp. and International Business Machines
Corp., two American tech giants, have long been subject to
breakup speculation, though it’s never come to fruition. For
Redmond, Washington-based Microsoft, the talk has focused on
jettisoning its Xbox video-game consoles and the Bing search
engine. For IBM, it’s about stepping up what is essentially a
slow-moving slimdown that the Armonk, New York-based company has
been pursuing for a decade. Microsoft Chief Executive Officer
Satya Nadella can at least point to the stock’s 16 percent gain
in the past year, while IBM’s Ginni Rometty is up against a 12
percent decline.
Representatives for IAC, Amazon and IBM didn’t respond to
requests for comment. Representatives for Microsoft and Qualcomm
declined to comment.
For Related News and Information:
Amazon Wants to Prove It’s Now a Significant Player in the Cloud
Amazon Is Breaking Out Cloud Revenue. Why Aren’t You?
IBM CEO Under Pressure for Turnaround or Risk Breakup Calls
Microsoft Breakup Talk Starts With Less Is More Value: Real M&A
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
--With assistance from Alex Barinka in New York and Jack Clark
and Ian King in San Francisco.
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-02-18 00:04:02.743 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- Where EBay Inc. and Hewlett-Packard Co. have
gone, can Barry Diller be far behind?
IAC/InterActiveCorp, the billionaire’s holding company of
websites and dating apps such as Tinder -- where singles swipe
their smartphone screens to match up with other users -- may be
among the next technology firms to pursue a breakup.
IAC, as well as chipmaker Qualcomm Inc. and online retailer
Amazon.com Inc., all contain divisions that don’t have to be
under one roof and may be more valuable if separated, according
to analysts. EBay and Hewlett-Packard shares have outperformed
the broader U.S. equity market since announcing their respective
splits late last year.
Breakups have been comprising a larger chunk of deal
activity lately, according to Gavin Slader, a managing director
in the investment-banking group at JMP Securities who focuses on
the tech industry. About 40 percent of the deal transactions his
team advised on last year involved some sort of divestiture,
versus only 10 to 15 percent in prior years. Whether the goal is
to shed smaller units that aren’t a core part of the company or
to split a fast-growing business from a more cash-flow driven
segment, it’s a trend that will continue, Slader said.
“We’re definitely continuing to see the
divestiture/breakup/spinout conversation,” he said in a phone
interview. “With some of the larger companies, you’re getting
to the point of the old industrial conglomerate, where they’re
being valued at a conglomerate discount.”
If EBay’s dual-business structure was casting a shadow over
the stock, it’s been lifted in the four months since heeding
activist shareholder Carl Icahn’s call to spin off PayPal. The
shares gained 7 percent since the company’s Sept. 30 separation
announcement.
Similarly, Hewlett-Packard shareholders have rewarded the
company for its decision to break apart printers and personal
computers from enterprise hardware and software.
Here’s why these others make sense as breakup candidates:
IAC: Besides dating services Match.com, Tinder and OKCupid, the
$5.5 billion company owns search sites About.com and Ask.com as
well as the Vimeo video-streaming business. The New York-based
company recently reorganized the dating websites and some other
properties into a unit called Match Group, which could be an
initial step toward making it a separate publicly traded
company. Diller is known to do spinoffs -- he announced four at
once in 2008 and also spun out Expedia Inc. in 2005.
IAC is working on monetizing Tinder by creating ways to
charge users, as the company has done with its other dating
properties. Once Match Group proves it can do that, the unit may
be in a better position to become a stand-alone entity --
perhaps even later this year or early 2016, said John
Blackledge, an analyst for Cowen Group Inc. in New York. He
estimates Match Group alone could be valued at close to $5
billion based on the earnings before interest, taxes,
depreciation and amortization it may generate next year.
QUALCOMM: The majority of the $117 billion company’s revenue
comes from selling chips used in mobile phones such as Apple
Inc.’s iPhone, yet the majority of its profit is generated by
the fees it collects from smartphone makers that license its
technology. There’s been talk in the past of splitting San
Diego-based Qualcomm in two, which may also alleviate legal and
regulatory challenges it’s faced. The company just agreed to pay
$975 million and give a discount on royalties due on handsets
sold in China to settle an antitrust investigation, and U.S. and
Europe authorities are also looking into the company. With the
shares down about 7 percent in the past year -- one of the worst
returns among tech stocks in the Standard & Poor’s 500 Index --
it may once again start to look like an attractive option for
shareholders.
Investors may wonder if the high-margin licensing unit,
with its recurring revenue stream, would trade for a higher
valuation than it gets today by being locked in with the chip
business, said Mike Walkley, an analyst for Canaccord Genuity
Group Inc. At about 9 times Ebitda, Qualcomm is one of the
cheapest U.S. semiconductor stocks, according to data compiled
by Bloomberg based on companies larger than $5 billion.
AMAZON: The $174 billion online marketplace may be gearing up
for a split from its Web-services unit, which has grown to
exceed 1 million customers globally. It will begin reporting
Amazon Web Services in a separate category in this year’s
financial statements, branching out from the vague “North
America, Other” group it had been lumped in with previously.
The cloud-computing service’s usage growth was almost 90 percent
in the fourth quarter, Seattle-based Amazon said last month.
PERENNIALS: Microsoft Corp. and International Business Machines
Corp., two American tech giants, have long been subject to
breakup speculation, though it’s never come to fruition. For
Redmond, Washington-based Microsoft, the talk has focused on
jettisoning its Xbox video-game consoles and the Bing search
engine. For IBM, it’s about stepping up what is essentially a
slow-moving slimdown that the Armonk, New York-based company has
been pursuing for a decade. Microsoft Chief Executive Officer
Satya Nadella can at least point to the stock’s 16 percent gain
in the past year, while IBM’s Ginni Rometty is up against a 12
percent decline.
Representatives for IAC, Amazon and IBM didn’t respond to
requests for comment. Representatives for Microsoft and Qualcomm
declined to comment.
For Related News and Information:
Amazon Wants to Prove It’s Now a Significant Player in the Cloud
Amazon Is Breaking Out Cloud Revenue. Why Aren’t You?
IBM CEO Under Pressure for Turnaround or Risk Breakup Calls
Microsoft Breakup Talk Starts With Less Is More Value: Real M&A
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
--With assistance from Alex Barinka in New York and Jack Clark
and Ian King in San Francisco.
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman