Thursday, Dec 19th 2019

IAC and Match Group Approve Spinoff of MTCH


Today, IAC rose over +7% on news that IAC's and Match Group's boards have formally approved their previously announced plan to spin off Match Group (which trades under MTCH) from IAC.

The transaction is expected to close in the second quarter of 2020 and would allow IAC shareholders to own Match Group directly through MTCH stock rather through the corporate umbrella of IAC.

By structuring this transaction this way, IAC is able to transfer away its ownership of MTCH virtually tax-free (aside from the small portion of the deal value effected in cash).

Helping young but promising digital assets grow, then returning them directly to shareholders has long been part of IAC's strategic playbook.

Although it owns many different digital properties, IAC always been an "anti-conglomerate," a holding company focused on creating shareholder value rather than building an empire for the sake of it.

A value-enhancing spinoff of MTCH has long been part of the hedge fund long thesis on IAC, and we're pleased to see it finally approach fruition.

For more context and details around the transaction, please see some thoughts below from our prior work on the transaction announcement.

Some Context##

IAC has a long history of creating and spinning off businesses. We call it "the Berkshire Hathaway of digital properties."

In 2007, IAC announced plans to distribute shares of four companies at once—Lending Tree (TREE), HSN, Ticketmaster, and Interval. (The latter three have since been acquired.) IAC has spun out 10 public companies, including partial stakes in Match and ANGI.

The results speak for themselves. IAC's management put it nicely back in 2008:

“Over our nearly 25-year history, we’ve consistently separated out our businesses as they’ve grown in scale and maturity – and today IAC and its progeny have grown into nine publicly-traded companies, several of which have joined with other companies to pursue even bigger strategic opportunities.”

Meanwhile, Match has carved out a foothold in the online dating market, largely due to solid growth in its youth-oriented dating app, Tinder. It also includes other dating services like Match, Hinge and OKCupid. Match’s stock is up more than 70% this year and the company outperformed earnings expectations in the second quarter, with revenue climbing 18% year over year.

So this spinoff proposal is a natural fit into IAC's value creation strategy, and it's been a core tenet of our investment thesis for IAC.

Our Thoughts##

We're very positive on this Match Group spinoff proposal.

Why? Because IAC's market value is mostly comprised of Match Group's value today. Match’s stock (MTCH) is up more than 70% this year and the company outperformed earnings expectations in the second quarter, with revenue climbing 18% year over year.

As Match's stock has grown in value, it's become a larger percentage of IAC's value. The success of Match has effectively turned IAC stock into a Match proxy. IAC’s current market cap is about $19.5 billion; the company’s Match stake is worth about $16.6 billion.

But IAC doesn't just own Match. It owns Vimeo, College Humor, The Daily Beast, and loads of other digital properties with material revenue growth, plus a multi-billion dollar cash pile to deploy on new acquisitions and reinvestments in existing subsidiaries.

We think a ton of value can be unlocked from the Match spinoff. At current prices of MTCH and ANGI (the other big company that IAC owns), investors are getting the "stub" -- i.e the reminder -- at nearly a -$2 billion value, or -$20ish per share. Yep, those figures come with negative signs.

This means you'd own fast revenue-growing digital properties like Vimeo and others, with a multi-billion dollar cash hoard, all for what the market says is worth less than zero today. Doing a spinoff will finally shine light on the "stub" and its true fair value. We like this risk/reward.

As of this writing, IAC was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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