Match is a relationship better enjoyed in private
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, July 17 (Reuters Breakingviews) -The private markets are a better match for dating app group Match MTCH.O. The owner of Tinder and Hinge has attracted plenty of rabble-rousing shareholders, including Jeff Smith’s Starboard Value. Amid sagging growth, though, other public investors are swiping left: the company’s shares have fallen 80% since late 2021. A leveraged buyout will give boss Bernard Kim breathing room with the chance of a healthy return.
Starboard disclosed that it has taken a 7% stake in Match in a regulatory filing on Monday. In a letter to the board, Smith praised a “high quality business” that is an “industry leader” - but argued that operations must be improved.
The main issue is Tinder. The popular dating app generated 57% of the company's $3.4 billion in revenue in 2023. A profitable internet darling is usually a match made in heaven for public markets, but there’s a big red flag: slowing growth. Paid users have declined for four consecutive quarters. That’s a drag on overall sales, which are only expected to rise 6% this year, according to LSEG data, down from a 25% pace in 2021.
The slump makes Match vulnerable to pushy activist investors with ideas for fixes. Elliott Investment Management took a $1 billion stake in the company early this year, resulting in two new board appointments.
While Match may give public investors the ick, private equity could be tempted. Cash flow is still healthy, expected to hit $1 billion this year, judging by LSEG data. Its EBITDA margin is still a chunky 36%, following forecasts for this year. And it’s gotten tantalizingly cheap. Including debt, Match was valued at around 26 times expected EBITDA in early 2022; it now trades at 9 times.
Assume a buyout shop offered a 25% premium, for an enterprise value of some $14 billion. Strip out stock-based compensation, and EBITDA should be slightly over $1 billion this year. Banks might offer six times that in debt, leaving a bit more than half the purchase price to fund with equity. That’s punchy, but just about plausible, especially if current shareholders like Elliott join in. Other buyouts this year, like a carve-out from Truist Financial TFC.N, saw a roughly 50-50 split of equity and debt.
If Match can nudge revenue growth to 8% and its EBITDA margin to 40% over five years, then selling it at the same implied 11 times multiple could generate an annualized return of roughly 26%. Match still has some charms. It might just take a private owner to appreciate them.
Follow @jennifersaba on X
CONTEXT NEWS
Starboard Value has taken a 6.6% stake in dating app company Match, according to a regulatory filing on July 15. The activist fund, led by Jeff Smith, said the company has an enviable market position, as the owner of leading apps Tinder and Hinge, but that it is undervalued and should cut costs.
In a letter to Match’s board of directors, Smith suggested that Match would be “well-suited” to operate as a private company.
Elliott Investment Management took a $1 billion stake in Match in January. Match appointed two directors to its board in March after consulting with Elliott and entered into an information sharing agreement with fund.
Match's value has fallen out of favor https://reut.rs/3SabFgF
Editing by Jonathan Guilford and Sharon Lam
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.