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.
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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
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