On the heels of shareholder restlessness, Groupon is considering acquiring another company — and insiders think Yelp could be the target, The Wall Street Journal reported on Thursday (Sept. 12).
“It is reasonable to conclude that a relatively large acquisition by Groupon is forthcoming,” Robert Chapman, founder of California investment firm Chapman Capital, told the WSJ.
Chapman sold part of his 10 million share stake in Groupon on Tuesday (Sept. 10) because he considers a large acquisition too risky for Groupon. He wants the Chicago-based daily deals company to buy back more of its own stock.
Sources familiar with the situation told the paper Yelp “would be a logical matchup” and the combination of the two companies could bring as much as $1 billion in earnings before interest, taxes, depreciation and amortization (EBITDA). A merger could save at least $200 million due to synergies, the sources said.
“We will be closely monitoring [Groupon’s] activity to see if it does attempt a larger-scale and potentially transformative deal, which would be a riskier strategy,” Tom Forte, an analyst at D.A. Davidson & Co, told the news outlet.
“While there is a large number of dissatisfied shareholders, they haven’t been able to build a position larger than that of the chairman,” he said. Groupon Chairman Eric Lefkofsky holds 13.57 percent of shares outstanding, according to FactSet.
“We see significant value in Groupon as an acquisition/merger target for multiple players,” Wedbush Securities Inc. analyst Ygal Arounian told investors this week, the WSJ said.
At the time of its initial public offering in 2011, Groupon was valued at $16.5 billion; now it’s about $1.4 billion.
Groupon’s game plan was to increase its valuation by expanding its subscription base, a strategy that isn’t sitting well with investors. Activist groups are among other investors trying to expand their influence.
As a way to boost earnings, Groupon recently entered into a distribution partnership with the internet and media company Prodege. The goal is for Prodege to provide its customer base with more money-saving and rewards-earning opportunities. It also launched a membership program called Groupon Select offering additional discounts.