Buy, Build, Spin: How IAC Supercharges Shareholder Value

The media conglomerate most recently announced its plan to spin off its flagship Match Group to access the heightened value of a "pure play."
David McCannDecember 19, 2019
Buy, Build, Spin: How IAC Supercharges Shareholder Value

If a company has a lot of capital and the patience to make long-term investments, good things can happen.

Good things have happened for shareholders of IAC/InterActive — and the many companies it has acquired, built up, and then sold or spun off as new public companies — since Barry Diller founded it almost a quarter-century ago.

Glenn Schiffman

An investor who put $1 into the company in 1995 and never sold their shares would have a $21 investment today, according to IAC finance chief Glenn Schiffman, who spoke at the recent, CFO-hosted conference, CFO Live. A dollar invested in an S&P 500 index fund at the same time would be worth only $9 now, he said.

The spinoffs, in particular, create shareholder value — and for each one, IAC has been the main shareholder. For example, after talking for months about spinning off Match Group, the company on Thursday announced its plan to divest its entire 80% ownership stake in the dating services provider.

The expectation is that Match — a collection of more than a dozen dating sites, including high flyers Match.com, Tinder, Plenty of Fish, and OkCupid — will generate enormous incremental value as a result of its separation from the rest of IAC, which currently has 6 operating segments and more than 150 brands and products.

That’s what happened following most of IAC’s earlier public-company creations, which have included Expedia, ANGI Homeservices, TripAdvisor, HSN, and Live Nation (formerly Ticketmaster), among others.

“The market always places a higher valuation on a pure-play asset than a conglomeration of assets,” said Schiffman. “[IAC itself] trades at a significant discount. We try to remind [investors] that at some point these businesses may be spun out.

“At some point, it makes sense for them to be on their own,” he continued. “We’ve found that creativity often gets unleashed when management teams are forced to set a new course with a talented and probing board. A plant needs to be repotted every so often.”

IAC typically emerges from the spinoffs with a majority stake but sells out of that position in due course. In the case of the Match, the complete, immediate separation will leave IAC with some different priorities.

As Match currently accounts for 80% of IAC’s market capitalization, after the transaction the company “will be dramatically smaller,” Schiffman said. “So everything else will mean a lot more. The management team will spend a lot more time on the other assets, which is a good thing.”

He added that the company’s business model is not about “empire building.”

“This is very simple,” he said. “We’re owners of this business. It’s about creating value. Our shareholders get to diversify, and our management team gets to diversify.”

The company likes to invest, as Schiffman puts it, “where the future is obvious.”

For example, IAC is currently in the process of building up its relatively nascent apps business.

“In the next 10 years, are people going to spend more time on mobile apps, or less time? That’s easy. And, are people going to watch more online video, or less, in the next 10 years? And so we have Vimeo, the largest SaaS provider of tools to enable businesses and consumers to watch video online.”

Complementary Competitors

One of the company’s most significant transactions was a reverse merger in 2017. HomeAdvisor, an IAC-controlled public company, absorbed Angie’s List, a competitor with a complementary business model. The combination created a new public company, ANGI Homeservices.

Jamie Cohen

Angie’s List had spurned an acquisition offer from IAC in 2015, but two years later the market dynamics were different, noted Jamie Cohen, who was executive vice president of finance and accounting at HomeAdvisor and is now chief financial officer of ANGI Homeservices.

“The market saw that the Angie’s List model of consumers paying for access to a list of home services was being rejected in favor of HomeAdvisor’s free access,” said Cohen, who joined Schiffman for the session at CFO Live. “We were putting a lot of pressure on them.”

Still, Angie’s List was the most well-known brand in home services, with 10-plus million unique monthly visitors to its site. Users were able to read reviews of service providers in order to inform the decision about which one to select. Customers used HomeAdvisor, on the other hand, to efficiently make online bookings with service providers, from which the company earned transaction fees.

“We saw a tremendous opportunity to capitalize on Angie’s traffic,” said Cohen, who at 33 may be the youngest woman CFO of a public company in North America. “We knew with confidence how it would monetize [when linked with] HomeAdvisor. So, we put our service-request path in various places on Angie’s site and saw exactly that play out.”

Meanwhile, asked by an audience member about marketing costs, Schiffman said, “Whenever we go through marketing budgets, I’m forever saying, ‘Don’t solve a product problem with marketing. Take all that money and solve the product problem,’ even though marketing does work.”

Cohen took the thought a step further. “Marketing services serves a purpose for customer acquisition,” she agreed. “But a product challenge we have is to not continually buy consumers, over and over again…. We need to create a product that is so sticky that you come back to us and don’t even have an inkling to go searching Google.”