As Video Dating Soars, Diller’s Match Spinoff Can Make Investors A Killing

They may be separating, but Match Group is not divorcing from genius value creator Barry Diller’s IAC, because this "conscious uncoupling" will allow both companies to live happily ever after — just as the rise of video dating takes the world by storm. 

Covid-19 has sparked a new trend for those looking for love.

The Edge (the global leader for activist ideas, special situations and Spinoffs) believes investors would be wise to look at both Match and IAC (InterActiveCorp) ahead of tomorrow’s (June 30) Spinoff to realize true value from Barry Diller's infallible investment insights. 

In April, Match.com CEO Hesam Hosseini revealed the company launched Vibe Check, an in-app video calling service, after a survey revealed almost 70 percent of singles are now interested in trying video dating.

In fact, becoming a singleton company may be the best thing that has happened to the dating behemoth since the MTCH MTCH IPO in November 2015, which generated value of +387% returns compared to the SPX’s +51%.

A true hero of his generation, billionaire Diller, 78, is one of the most prolific media magnates in history. He started his career in the “mailroom” of the William Morris Agency after dropping out of UCLA and has gone on to have an amazing career.  

As Chairman and Chief Executive Officer of Paramount Pictures, then 20th Century Fox, Diller also has a phenomenal ability to spot and enhance companies.

In total, Diller has successfully separated nine publicly listed entities, like ANGI Homeservices, Inc., Match Group, Expedia, TripAdvisor, HSN, Tree, Interval, and Live Nation (formerly Ticketmaster).

He testified on Capitol Hill to the US Senate Commerce Committee in 2012 on “The Emergence of Online Video: Is It The Future?” and is regarded as a true visionary.

He has mentored world famous media executives dubbed "The Killer Dillers,” including Michael Eisner, Dara Khosrowshahi, Dawn Steel, Jeffrey Katzenberg, Garth Ancier, and Don Simpson.

As the sugar daddy of internet love, Diller has pioneered the concept of online dating over 20 years. Match Group was formed by IAC in 2009, it had a blistering IPO in 2015, and now owns 45 global dating app companies in over 40 languages. 

Tinder is now the number one downloaded dating app worldwide, while products like OkCupid and PlentyofFish make up Match’s 9.9 million paid users up from 4 million in 2015.

The Spinoff of Diller’s 80% stake in Match could not have come at a better time for the dating app company, as it expertly morphs into video dating. If successful, it will roll out its new-era live camera dates across the group’s brands, as singles’ desire for interaction grows.

The transaction will allow IAC to clean its balance sheet by transferring all debt (~$1.9bn) to the Spinoff and end up holding $2.9bn in cash, which will allow IAC to follow its legacy of continual inorganic expansion by investing in growth areas without burdening itself with debt.

Diller's Committed To Match

Currently, Diller and his family collectively own a 6.9% stake in IAC, and, as a result, The Edge believes his personal economic stake in MTCH ensures that he has an incentive to keep the company’s growth prospects intact. 

With a ~5% stake post-Spin (considering a distribution ratio of ~2.37x), a large portion of his net worth will be tied to MTCH. 

Additionally, The Edge does not think Diller will trim his holdings prior to or after the distribution, as he has maintained his stakes in most of IAC’s previous distributions. For instance, Diller maintained his stake in EXPE post-Spin, personally benefiting from the company’s near 5x appreciation to date. 

IAC Spinoff Success Stories

IAC has a history of maximizing shareholder returns by separating companies, an approach which has produced fruitful results. 

IAC has performed multiple Spinoffs in the last 15 years that have led to long-term value creation, including the separation of EXPE in August 2005 and TREE, TKTM, ILG, HSNI in August 2008. 

All of these transactions have led to an increase in value for both the Parent and Spinoff, reflected in their share price outperformances and acquisitions at a premium since their respective Spinoff dates. 

The Edge believes this upcoming distribution is another move to unlock potential value using the same strategy:

• EXPE: +285% return vs SPX returns of +153.5%;

• TREE: +3,792% return vs SPX returns of +143%;

• TKTM: Merger with Live Nation (LYV) on Jan 27, 2010, at a +20% premium to the then-market cap of ~$454m;

• ILG: Acquisition by Marriott Vacations, Inc. (VAC) on Sept 24, 2018, at a +15% premium to the then-market cap of ~$4.5bn;

• HSN: Acquisition by Liberty Interactive Corp. (BATRK) on Jan 2, 2018, at a +28% premium to the then-market cap of ~$1.3bn;

• IAC (Parent): +1,078% return vs SPX returns of +153.5% since its first Spinoff in 2005 to date

Dotdash Investment 

Digital media company Dotdash is a current strategic investment for IAC (bought in 2012), which The Edge thinks is the next leg of growth with revenue of $168 million in FY19, having grown at a CAGR of +23% since FY16.

Additionally, it is the first privately held company in IAC’s portfolio having reached a profitability mark with EBITDA margins of ~17% in FY19. The Edge thinks that following the MTCH distribution, IAC will focus on its remaining portfolio, investing the cash to help it grow.

For the full nine page fundamental IAC and Match Spinoff report, including key metrics, charts and recommendation, reach out to me at jo@edgecgroup.com.