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IAC Uses Reverse-IPO Maneuver With HomeAdvisor To Create $4.2-Billion Combo With Angie's List

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IAC Uses Reverse-IPO Maneuver With HomeAdvisor To Create $4.2-Billion Combo With Angie's List

In a note, Barclays analyzed the reverse-IPO maneuver IAC/InterActiveCorp (NASDAQ: IAC) used to combine its HomeAdvisor with Angie's List Inc (NASDAQ: ANGI) in a deal valuing the combined business at $4.2 billion.

Reverse Merger

A reverse merger, according to Investopedia is a simple and less expensive way of closely held companies going public through a merger with a public shell company. The advantage of taking this route is that private companies need not raise cash to go public and the whole process gets done in a few weeks.

An Unsurprising Move

Analyst Ross Sandler termed the move as unsurprising due to the deal unlocking huge "hidden in plain sight" value, given IAC's conglomerate structure. Additionally, the analyst said the deal is well above its previous valuation assigned to HomeAdvisor of $2 billion.

Upside To Current Estimates Likely

Barclays said it is reminded of the 2014 Zillow/Trulia Inc (NYSE: TRLA) deal, where two market leaders combined and unlocked synergies by eliminating its main competition and consequently optimizing its cost structure.

The firm noted that the company expects $100 million to $250 million in annual synergies for the combined entity. This, according to the firm, will come mostly from sales and marketing, given the limited competition bidding for keywords and the ability to leverage shares' expenses.

For the combined company EBITDA of $270 million estimated by Barclays, synergies of $93 million would suffice, which is below the low range of guidance. Accordingly, the firm sees upside to current estimates.

"Pro forma for this deal, we estimate IAC's new market capitalization is composed of Angie/HomeAdvisor of $3.1 billion, rather than the full $3.6 billion (assuming 87 percent ownership) as the deal hasn't closed yet and we'd like more details on the planned synergies before assigning the full value of $4.3 billion for Match Group Inc (NASDAQ: MTCH), $545 million for Vimeo, $0.7 billion in current cash and $670 million for the remaining basket of websites," Barclays estimated.

Raising Price Target

Barclays has an Overweight rating on the shares of IAC, while it raised its price target to $96 from $82, attributing the action to the value-creating transaction.

At Time Of Writing

  • IAC shares were rallying 14.74 percent to $96.59.
  • Angie's List shares were soaring 57.89 percent to $9.30.

Related Links:

IAC Upgraded On Strength Of Match Group Sentiment; Is The Market Undervaluing Its Portfolio?

Latest Ratings for ANGI

DateFirmActionFromTo
Sep 2019Initiates Coverage OnNeutral
Sep 2019Initiates Coverage OnNeutral
Sep 2019MaintainsOutperform

View More Analyst Ratings for ANGI
View the Latest Analyst Ratings

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