Strange Bedfellows

On one side, an enormous media conglomerate. On the other, a single individual
The acquisition of Plenty of Fish by The Match Group was a rare gem. Founder Markus Frind had built his company into one of the world’s largest dating sites, and he’d done so without any equity financing. The upshot? A straight cash transaction where an enormous media conglomerate, IAC/InterActiveCorp, was forced to negotiate with just one person — the man who'd bootstrapped POF into a US$575-million enterprise. With an IPO on the line and a federal election threatening to interfere with regulatory reviews, lawyers had their hands full.

: This deal made for unusual bedfellows. On one side, you had a large corporation, InterActiveCorp, with dozens of subsidiaries, including The Match Group, which operates some 50 dating sites. And then, on the other, you had a single person: Markus Frind, owner of Plenty of Fish. That’s got to be different.
Ryan Black (McMillan LLP, for Plenty of Fish): In the tech industry, it is extremely rare to deal with an entirely bootstrapped company. Everything became very streamlined, and decisions could be made very quickly. This tended to make the negotiations both at the business level and amongst the lawyers very straightforward.
Tom Theodorakis (McMillan): But let’s not forget … there was a highly dedicated team working with Markus … so [he] could focus on the key issues.
Allan Goodman (Goodmans LLP, for The Match Group): For us, there was no difference. How each side interacts with its client may be different, but as for the dynamic of the deal, it was much the same for us working as one counsel opposite another.

: Frind wasn’t just your typical tech entrepreneur, though. He didn't just birth the company and then look to sell.  POF had been actively competing with Match for years, until the company decided it would make more sense to buy POF than compete. Was there any other rationale driving this deal?
Goodman: Match and its parent company, IAC, are always on the lookout for opportunities that fit within the various portfolios of businesses they already own. In this case, the business was an excellent fit within Match’s online dating business portfolio.
Black: Markus had generated tremendous growth and profitability through the POF business. Given the success of Match’s other platforms – Match, Tinder, OKCupid – one can see how adding POF really does complement their existing portfolio …

: How did Match make its first approach? Did you all know each other from working on previous deals together?
Black: Things moved very quickly from drafting to signing. The lawyers first met about a month before signing. For the most part, none of the [individuals on the] deal teams had worked with each other before.
Goodman: We have worked with McMillan on previous transactions and felt it was a very collaborative effort to get the deal done in an effective, efficient and timely manner.

LEXPERT: There was also an IPO in the works, with Match Group announcing in June that they would be floating their stock. Did the forthcoming issuance add any pressure to get the deal done?
Black: It certainly gave us a target date to set expectations for a closing as well as a very good reason to hit that target …
Goodman: It was understood by both parties this acquisition would form part of the Match portfolio that would be floated in an IPO. To that end, all necessary work had to be completed, including work on the financial statements of Plenty of Fish, to ensure that when the deal concluded, Match would be in a position to include Plenty of Fish in its securities offering. Everyone was aware of the IPO timetable and worked collaboratively towards successfully meeting that timetable.
Black: [T]he biggest pressure for timing was getting the regulatory approval. Ultimately, the timing worked very well, as regulatory approval was obtained with sufficient time to close pre-IPO.

LEXPERT: Was the negotiation simpler than usual? After all, this was a straight cash deal with one seller.
Black: I wouldn’t call it a breeze, but I think it’s fair to say that the negotiation was a lot smoother because there was one decision-maker on the seller’s side. Also, while there were the typical business, legal and due diligence points to work through, the mechanics of the deal, such as payment arrangements and closing processes, were obviously streamlined, so it was a relatively simple closing process.
Goodman: The single seller also made it easier as you were only dealing with one entity when issues arose or when considering any pre-closing restructuring to be undertaken. It certainly did not have the complex inter-corporate framework that can sometimes slow a deal down.

LEXPERT: What was he like, by the way? I suppose you get to know a client pretty well when that client is a single person.
Theodorakis: Markus was a great client to work with. He let legal counsel do their job and negotiate through the myriad of legal issues typical in an M&A deal, so that we would whittle away most of those and only have to take to him key issues for input. When we did that, he was very focused and able to quickly understand the issues and deal impact and in real time work with us to develop a responsive framework.

LEXPERT: But this deal wasn’t quick. It took three months from announcement to close, so what was the hold-up? I understand that the deal was subject to a review by Industry Canada.
Black: In Canada, foreign acquisition of control of a Canadian company is subject to review … if the enterprise value exceeds a certain threshold. In this case, the threshold was exceeded with a purchase price of US$575 million. The buyer made its submission to Industry Canada shortly after the deal was signed in mid-July, and the process often takes its maximum 75 days. So the timing worked out more or less as we expected it would at signing.
Theodorakis: [T]he period of actual review was not unusual under that statute. The review was necessary due to recent changes to the threshold to enterprise value — the purchase price. This uniquely affected a company with a high valuation, notwithstanding the relatively modest book value of its assets. As part of its process, Industry Canada also consults the Competition Bureau, so they had to sign off, too.
Black: It was interesting to me that the Canadian election played into the timing. We thought the approval process would be delayed if it was not obtained by election day, because the Minister of Industry was not running for re-election. This would have added a lot of complexity to timing this deal with the Match IPO. It got pretty close, but to the credit of the office of the Minister of Industry, we had our approval by Election Day.

LEXPERT: What would you say was the biggest risk to this deal?
Black: Markus had been running a successful and growing business for many years, so we had confidence that would continue. The biggest risk was the regulatory review. There were relatively few conditions to the deal, apart from that, and we were fairly confident that the transaction would be a net benefit to Canada.
Goodman: From our perspective, there was no policy reason why Canada would not welcome this investment. There is also lots of competition in the dynamic online dating business, with Mr. Frind’s success being just one excellent example of the ability of new players to innovate and succeed.

LEXPERT: What was the most memorable aspect of the deal?
Black: It is certainly memorable to work on an entirely bootstrapped exit of this size. In fact, I’m told it might be the largest entirely bootstrapped exit ever. It’s an incredible success story — and a very atypical one against the typical seed and series rounds in the tech industry. That alone makes it incredibly memorable ...
Goodman: To me, the most interesting aspect of this deal is that the seller in the end was the one and only person who created this enterprise from scratch, and was able to do so without ever having to borrow money or raise equity from outsiders until the ultimate sale of the company. It is a great success story for Canadian innovation and entrepreneurship and it was exciting to be part of the team that helped bring this transaction to a successful and happy conclusion.

(For a summary and full list of legal advisors, click here.)