Angie’s List (ANGI) rejected an acquisition offer from IAC/InterActive Corp. (IACI) Thursday, but for the sake of ANGI stockholders, that better just be a negotiating ploy. As an unprofitable, borderline microcap holding, ANGI should take the money and run.
ANGI, which connects consumers with home maintenance and home improvement services, has been a sinkhole for retail investors since its 2011 initial public offering.
Consider that regular investors can’t get in on the IPO price. Furthermore, most money that comes into a bubble comes in near the top. Since ANGI stock is off 50% from its first-day-of-trading close and 70% from its 2013 peak, you can bet a lot of retail investors either sold losing positions or are sitting on losses.
More recently, thanks partly to a double-digit percent rally on the deal news, ANGI is up more than 40% for the year to date. Pretty much all of that has come just in the last few weeks, however, and was driven by acquisitions rumors that IACI just proved correct.
IAC offered $512 million in cash for ANGI, which represented a 10% premium to its Wednesday closing price. With shares in ANGI jumping about 14% in the first hour of trading following news of the deal, the market is betting that IAC will hike its offer.
Fair enough. Maybe it should. But not by much.
After all, ANGI can’t just walk away. The stock would crater and confidence in management finding any kind of remunerative end game in this dog would be shot.
IAC Offers ANGI Some Much-Needed Scale
ANGI is simply too small to compete. It needs scale, which IAC offers by wrapping it up with its HomeAdvisor site (which does the exact same thing.)
As for IAC, it should be willing to negotiate because it needs to bulk up now that it plans to spin off Match Group in an IPO. The remaining businesses, which include About.com and Ask.com, aren’t much to brag about.
Neither is ANGI, but partnering it with HomeAdvisor could make it make sense. IAC says a merger of the two would create a business with more than $700 million in revenue.
ANGI, meanwhile had annual revenue of just $315 million last year. After the big jump Thursday, the market cap still stood at less than $520 million.
As an investment, ANGI is too small for many mutual fund managers to touch. A track record of never recording a profitable fiscal year is also unattractive for many potential shareholders.
True, a lack of profitability is due to ANGI plowing money back into its expansion efforts. Ordinarily, that’s an effort worth applauding, but not in ANGI’s competitive landscape. Indeed, in ANGI’s case, the effort is almost comical.
ANGI is actually shedding market share and subscribers because it charges for things that sites like Yelp (YELP) and TripAdvisor (TRIP) provide for free.
But it gets worse.
ANGI is going up against Amazon‘s (AMZN) home services business, as well as a platform from Alphabet’s (GOOG, GOOGL) Google
This is like ANGI bringing an umbrella to a carpet bombing.
A major activist shareholder — TCS Capital with a 9% stake — is another strong force pushing for this deal to happen.
Bottom Line
If you are unfortunate enough to be a shareholder in Angie’s List, don’t get greedy for incremental upside. The stock is already well above the offer price.
Just because this deal makes too much sense not to happen doesn’t mean it will.
Angie’s List isn’t exactly known for its stellar decision making.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
