HomeAdvisor Seen as Best Pick Among Angie's List of Suitors

NEW YORK (The Deal) -- Angie's List (ANGI) continues to captivate activist investor TCS Capital Management, which is now urging the struggling consumer review site to merge with the HomeAdvisor unit of Barry Diller's IAC/InterActiveCorp  (IACI) .

TCS Capital Management revealed Tuesday in a 13D filing that it had increased its stake to 9.1% from 7.9% and that it sent a letter to the chairman and board of Angie's List.

In the letter dated Tuesday, TCS Capital Management's President Eric Semler asserted that it doesn't make sense for Angie's List to remain a standalone company and urged a combination between the Indianapolis-based target and IAC's HomeAdvisor.

"As you know from our discussion, we believe there is compelling strategic logic to an Angie's List-HomeAdvisor combination," Semler wrote, adding that the tie-up would yield significant cost savings and end a hostile marketing battle between the two companies. "Such a combination would provide much needed scale to compete successfully in the $300 billion home services market."

The transaction could be structured in a tax-free manner and Angie's List could remain public, he further noted. 

"Based on reasonable valuation multiples, Angie's List shares could at least double or triple following a combination with HomeAdvisor," Semler explained, adding that any other strategic combination would also generate value for investors. 

Semler asserted in a phone interview Tuesday that with the right management team and the right execution, Angie's List could easily post $75 million to $100 million in EBITDA. The consumer review site currently has $15.7 million in EBITDA and is expected to generate $28.7 million in 2015, according to Bloomberg data. 

"We feel like the company is not moving as aggressively to cut cost, and we think that another owner could really attack that cost base much more aggressively and create a lot of EBITDA at this company," he said. 

Semler's TCS Capital disclosed its 5.4% stake in Angie's List in July, asserting then that it planned to have talks with the company about everything from a potential sale to operations to the pending selection of its next CEO. Just a month later, TCS Capital said that it had raised its stake to 7.9% and that it intended to seek up to three seats on the board through conversations with current directors.

In September, Angie's List named former Best Buy  (BBY) executive Scott Durchslag as its CEO to replace co-founder and former CEO William Oesterle, who resigned in April.

"We think he has a flexible, open-minded perspective on the strategic opportunities that Angie's List has in front of it," Semler said of Durchslag.

Industry sources previously told The Deal that HomeAdvisor is among the wide pool of potential buyers for Angie's List. Other prospective suitors include Constant Contact  (CTCT) , Groupon (GRPN) , Priceline Group  (PCLN) , Home Depot HD and Lowe's Companies  (LOW) . Despite its disappointing performance since its initial public offering in 2011, Angie's List has a great brand name and a strong base of subscribers, sources have said.

Japan's Rakuten, eBay (EBAY) , Amazon.com (AMZN) and Comcast (CMCSA) could also be among the potential partners of Angie's List, suggested a source close to the matter who asked for anonymity.


Still, HomeAdvisor appears to be the most logical merger partner for Angie's List, the source said, adding that the two are similarly sized companies with "very similar businesses and very similar metrics."

"It's no secret that Angie's has not executed that well. That's why the stock trades at a depressed valuation," this person said. "HomeAdvisor has gone in an opposite direction."

The potential valuation of such a combined entity would depend largely on what Angie's List and HomeAdvisor would agree to in terms of how much each would own in their respective companies, the source explained.

Still, the marriage, in which Angie's List would remain public, could create a dominant player in the home services sector that trades at $12 per share to $15 per share, or 12 times Ebitda. Based on the 58.52 million outstanding shares of Angie's, this would give the entity a valuation of between $702 million to $877.8 million.

This source went on to say that the majority of the top equity owners of Angie's List have been long-term shareholders of the company, including TCS, which has been an investor since Angie's List was privately held. This person said there is a shared frustration among this shareholder base about the execution of Angie's List and the philosophy of its chairman, John Chuang, who owns about 20% of the review site.

A tie-up between Angie's List and HomeAdvisor would make sense and create a dominant player in the home services universe, said Benchmark Co. analyst Daniel Kurnos.

"Angie's List is a money-losing competitor in this space to HomeAdvisor, which is significantly much more profitable," he said, adding that HomeAdvisor also has a strong international business that Angie's List lacks.

While the marriage makes strategic sense on paper, Kurnos wondered whether IAC would make such a deal considering Angie's List continues to promise that it will generate profit and is worth more than its current valuation. Still, IAC may be more open to do so now given that it plans to take its growth machine, the Match Group, public, he added.

IAC doesn't break down financial figures for its businesses, but Benchmark has a $500 million valuation for HomeAdvisor.

Angie's List said in an emailed statement Tuesday that the board and management team values the views of shareholders and that it has had an ongoing dialogue with TCS Capital.

"We are keenly focused on value creation and realizing the company's full potential," the company added.

IAC officials did not return requests for comment Tuesday.

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