Angie's List Deal Is Job Well Done for IAC's Barry Diller

(Bloomberg Gadfly) -- Good things come to those who wait -- if your name is Barry Diller, that is.

The media mogul's IAC/InterActiveCorp is buying Angie's List Inc. and combining the consumer-review website with its HomeAdvisor business to form a separate publicly traded company. The deal -- announced late Monday -- is a good one for both parties, but IAC is clearly getting the better end of this. Shares of the owner of Dictionary.com and Investopedia jumped as much as 19 percent in early trading.  

IAC pitched this combination in late 2015, but Angie's List turned down its $8.75-a-share cash offer (an ill-advised move in my opinion) to pursue its new CEO's turnaround strategy. So IAC and Diller waited and watched: 19 months and several earnings disappointments later, Angie's List stock ended up right back around where it was before their earlier approach, so back they came. Angie's List shareholders can now either exchange their shares for new ones in the combined entity or take $8.50 in cash apiece up to a maximum payout of $130 million.

The cash portion of the offer implies a total equity value for Angie's List of about $508 million, only about $4.5 million short of what IAC was willing to pay back in 2015. But many investors and analysts felt at the time that if Angie's List had only engaged with IAC, the eventual takeover value would have been higher. And the stock traded above $9 as recently as December. So it's hard to get a full sense of just how much value Angie's List may have squandered by waiting.

Better late than never, though. The $8.50 cash portion is a 15 percent premium to what analysts' had thought Angie's List would reach on its own over the next year. This is one deal where stock may be an equally appealing offering, though, because it gives investors the chance to participate in the value created by combining Angie's List's well-known brand with HomeAdvisor's larger service-provider network. There are growth opportunities: 90 percent of discovery for the $400 billion U.S. home-services market still happens offline. All in the companies see as much as $250 million in annualized synergies, broken down like so:

But at a maximum, Angie's List shareholders will own 13 percent of the combined company. In case it wasn't clear where the real value creation is here, Diller's quote in the second paragraph of Monday's press release announcing the transaction is focused on how well IAC has done on this deal and others and makes no mention of Angie's List by name:

"This is now the 10th publicly traded company to emerge from what was one company, in 1995, with $48 million in sales and a market capitalization of $201 million – the beginning of IAC. Today, the equity value of the companies created is in excess of $43 billion, with a compounded annual return of 13.3 percent.  While it's hard to predict the future, I think we'll just keep going." 

Taking the midpoint of the potential Angie's List ownership range and assuming an 18 times Ebitda multiple, Cowen & Co. analyst John Blackledge values IAC's stake in the new combined company at $4.3 billion. That compares with the $1.9 billion enterprise value he estimates the market had assigned to HomeAdvisor, and suggests upside of about $2.4 billion for IAC -- without even giving the company credit for its other businesses like Vimeo.

Even taking a less aggressive Ebitda multiple of 14 times and assigning some value to Vimeo as Piper Jaffray Cos. Samuel Kemp does, there's still more than $1 billion of value that could be unlocked at IAC. Paying out $130 million of cash for $1 billion-plus of value creation seems like a pretty good trade to me.

So well done, Barry Diller. Better that you followed through on this bet than the one that "huckster" Donald Trump would never become president. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

1. IAC's overall market cap of billion also reflects its stake in Match Group Inc., which it took public in November

To contact the author of this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.