Home Services Marketplace Angie’s List Rejects IAC’s $512M Acquisition Offer

Well, it looks like it might be a while yet before you swipe right to find your next bricklayer or painter. Angie’s List, a marketplace for independent contractors, has formally rejected an offer from IAC, owner of Tinder, to buy the business for $512 million. The offer, originally made earlier this month, was for IAC to buy the company at $8.75 per share. Angie’s List trades on the NASDAQ exchange.

“We continue to believe that there is significant value embedded in the Company and that it is premature to conclude at this time that a strategic transaction is in the best interests of Angie’s List shareholders,” wrote Angie’s List CEO Scott Durchslag to IAC in a letter published by his company. “We appreciate your interest in Angie’s List and your recognition of our market-leading platform.”

The development comes as IAC is in the middle of a different M&A process: its subsidiary Match Group — including dating app Tinder, which lets you swipe left and right to reject or accept possible matches — has filed to go public.

This was the second approach made by IAC for Angie’s List, which is both a marketplace and user-generated local listings and reviews site. It provides a platform for builders, exterminators, cleaners, healthcare assistants, and other services contractors to connect up with local people who want to hire them for jobs; and it’s a site for people to find and rate these contractors. This was IAC’s second approach to the company, with the first offer in October at $8.50 per share, so perhaps the company will come back a third time lucky with a higher offer.

Angie’s List went public in 2011, but since then its share price has fallen from its opening price of $15.80. This is due in part to the company facing competition from larger firms like Amazon as well as a host of faster-moving, privately funded startups like Thumbtack offering alternatives.

Another reason is that the margins on marketplace business models are thin. It means Angie’s List needs scale to have strong returns, but the cost of expansion weighs on the business, and it has lost money every year since going public.

Its CEO Scott Durchslag joined the company in September after longtime CEO Bill Oesterle said he was stepping down to pursue political office. Durchslag came from Best Buy.

IAC presumably believes that it has a large enough portfolio of other Internet brands — it owns some 150 including some with Angie’s List synergies like HomeAdvisor — that it could leverage to grow the Angie’s List network. It would also give IAC an additional revenue stream beyond its mainstay of advertising.

Angie’s List’s share price has dropped down to $9.35 per share — perhaps as a result of this most recent news — but even so, that is still higher than IAC’s offer. The company’s current market cap is $573 million.

The full text of the letter from Angie’s List to IAC CEO Joey Levin is below:

Dear Joey:

The Angie’s List Board of Directors, with the assistance of its independent financial and legal advisors, has considered your November 11, 2015 letter proposing to acquire Angie’s List for $8.75 per share in cash. Based upon a thorough analysis, the Board has unanimously reaffirmed the conclusion it reached and I communicated to you regarding IAC’s October 23, 2015 proposal to acquire Angie’s List for $8.50 per share. This followed your initial October 5 letter, when you first approached me regarding a potential combination.

We continue to believe that there is significant value embedded in the Company and that it is premature to conclude at this time that a strategic transaction is in the best interests of Angie’s List shareholders. We appreciate your interest in Angie’s List and your recognition of our market-leading platform.

As you are aware, I was appointed as the new President and Chief Executive Officer of Angie’s List in September. As announced on the third quarter earnings call, we are developing a new Profitable Growth Plan for the Company. While we expect to provide the details of this plan next quarter at our Investor Day, we are already beginning to execute some elements of it.

In addition to our new Angie’s Fair Price Guarantee and Angie’s Service Quality Guarantee announced last month, we launched LeadFeed last week, a new product designed to capture demand from free online visitors and turn that demand into leads for service providers. We have identified $10 million in cost reductions, redesigned the sales force, baselined Net Promoter Scores, changed media agencies, shifted ad spend toward digital channels, and began scaling our new Angie’s List 4.0 platform nationally.

In connection with our third quarter results, we reported improved efficiencies, including in selling and marketing expenses, together with increased quarter over quarter revenues, that led to expanding margins in the third quarter. The increased revenue reflects improved year on year service provider metrics, including increases in contract value, backlog, total members, first year member retention, web traffic, mobile web traffic and consumer and service provider participation in e-commerce. Additionally, we turned around the second quarter’s sequential decline in participating service providers. The 2015 third quarter was the first profitable third quarter in the Company’s history.

The positive results we are seeing give us confidence in the direction we are heading. The market also appears to share our enthusiasm as the Company’s stock price increased 11% on the day we announced our third quarter results and previewed elements of this Profitable Growth Plan, and has increased 27% from that day through market close on November 11, prior to when IAC publicly announced its proposal1.

As I explained to you on our telephone call on November 3, the Board considered your October 23 proposal and concluded that it should have the opportunity to fully evaluate our Profitable Growth Plan and should share that plan with shareholders before reaching a decision as to whether to engage in a transaction with IAC or any other party. Nevertheless, IAC publicly announced its unsolicited $8.75 per share cash proposal only eight days later. Notably, this “increased” proposal represented only a 10% premium at the time it was made and dramatically undervalues the Company. We therefore believe it is not a compelling reason to shift our focus to IAC and derail the turnaround work we have underway, particularly given the long-term value creation potential of our plan. While such shift may be good for IAC shareholders, we do not believe it is in the best interest of Angie’s List shareholders.

The Board of Directors and management of Angie’s List are committed to enhancing shareholder value, and our interests are aligned with all Angie’s List shareholders’ as together we own more than 20% of the Company’s outstanding shares. The Board does not believe it is in the best interest of Angie’s List shareholders to rush to judgment and that doing so would be contrary to our fiduciary duties. If the strategic logic underpinning your proposal is sound, it will still be sound next quarter when our Profitable Growth Plan is announced. Once our Profitable Growth Plan is completed and our shareholders informed, we will of course consider any value enhancing alternative to the plan, including a transaction with IAC or other third parties.