Osmium Partners Demands Action At Spark Networks To Maximize Shareholder Value
4. On July 14, 2010, we spoke with EasyDate’s Chairman whose company just went public with the stated goal to fund acquisitions and international growth as they attempt to win more of a global market worth an estimated £1bn. Given that Piper Jaffray (“PJC”) has been running a process on behalf of the Special Committee for the past four months to consider all strategic alternatives including the sale of Spark, we were shocked to learn that EasyDate has never been contacted. By failing to contact a legitimate partner or acquirer, our fear is that PJC is not effectively canvassing or seeking strategic alternatives from all potential buyers/partners.
In a recent proxy fight with Vitacost (Nasdaq: VITC), GHP filed an investor presentation with the SEC on May 26, 2010, discussing “the opportunity cost of shareholder inaction”, which reflects that the peer market multiple for an internet vitamin retailer was 17.7x EBITDA, and that Vitacost was undervalued by 82% given a long list of poor corporate governance issues.
The “Opportunity Cost” of Shareholder Inaction
|($ in millions) Company||Share Price||Market Capitalization||Firm Value||CY2009A- 10E Rev Growth||CY2010E EBITDA||Firm Value / CY2010E EBITDA|
|Median Peer Multiple||17.7x|
|Implied Firm Value||$||471.2|
|Plus: Cash and ST investments||44.3|
|Plus: Option Strike Proceeds||12.3|
|Total Fully Diluted Shares Out||29.7|
|Implied Share Price||$||17.47|
|Premium to current (%)||82.2||%|
|Source: GHP / SEC filing.|
We replicated this methodology below to show investors the “opportunity cost” to them created by Spark’s current management team and board failing to focus on shareholder value.
|Company||Share Price||Market Capitalization||Firm Value||Firm Value/ LTM||EBITDAS Margin|
|LTM Adjusted EBITDAS||$10.4|
|Median Peer Multiple||11.8x|
|Implied Firm Value||$122.0|
|Plus: Real Estate Proceeds||$1.6|
|Implied Share Price||$6.24|
|Premium to Current||86.2||%|
|Alternatively, the value of Spark could be determined from the perspective of a strategic acquirer. Given Spark’s bloated cost structure, high management compensation and public company costs, as well as potential marketing budget synergies, we believe a strategic acquirer could realize large synergies with relative ease.|
|Plus: Public Company Costs||$1.0|
|Plus: Management Team Costs||$3.5|
|Plus: Excess Headcount Costs||$3.1|
|Implied Firm Value||$143.7|
|Plus: Real Estate Proceeds||$1.6|
|Implied Share Price||$7.28|
|Premium to Current||117.2||%|
|Source: Capital IQ and Company Press Releases. Most current EasyDate financials as of 12/31/09. Spark Networks revenue per employee is $280K vs. peer group of $590K. For the analysis above, we assumed $440K in revenue per employee.|
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