Details on Spark acquisition of Minglematch

Email Spark Investor relations. I didn’t aks about that. Purchases have been in the 3x revenue range lately.

If you look on their latest quarter financials you will see all of the details. I will copy them below. We actually called Sparks and they told us this is public information and does not interfere with their “quiet time”

What amazes me is that MingleMatch only had 2.5 million in revenue in 2004 and lost $443,000.00!! The multiplier is 6 times revenue which is hard to imagine in this market.

“On May 19, 2005 the Company completed the purchase of MingleMatch Inc., a company that operates religious, ethnic, special interest and geographically targeted online singles communities. The acquisition of MingleMatch fits with the Companies strategy of creating affinity-focused online personals that provide the highest quality experience for our members. In addition to increasing our member and subscriber bases, the Company expects the purchase of MingleMatch will allow for numerous cost and revenue synergies. The purchase price for the acquisition was $12 million in cash, which will be paid over 12 months, with $3 million to be paid in 2005 and $9 million to be paid in 2006, as well as 150.000 shares of the Companies ordinary shares, which on the date of the acquisition carried a value of approximately $1.1 million. The Company is currently in the process of performing its purchase price allocation and expects goodwill to increase significantly as a result of the transaction. For the fiscal year ended December 31, 2004, MingleMatch reported net revenues of approximately $2.5 million and a loss of $443,000″.

“The numbers don’t make sense!”

In looking at minglematch’s press releases from 2004 you can see they signed up the majority of people near the end of 2004. I suspect a million or more of that revenue would have been deferred into 2005. If you take into account the deferred revenue the multipul would be down around 4.

“Let’s go lose some money so we can be acquired”

The $13.1M for MingleMatch will only materialize if Spark can see 2 things happen:

1. Their NASDAQ IPO actually happens and goes well (unlike last year, when it was pulled), as they do not have the cash (check their balance sheet) to pay for their purchase of MingleMatch.

2. The deal (is more than likely) dependent on being paid out of MingleMatch’s future cash flow as run by Spark. If both MingleMatch and Spark cannot run profitable companies separately, how can they do it together? And, even if Spark can improve on its existing brands, unless MingleMatch’s properties turn a profit, then I doubt any money will be released.

Ben may never see a penny for his company.

We always wondered how sites like ChristianMingle.com (one of MingleMatch’s sites and a competitor to us) could make money when they were spending so much on advertising, e.g. Overture and Google AdWords. We suspected they were losing, big time. Now we know. I guess this means that our other competitors are also losing money.

We consistently make over 50% EBITDA profit each year, so I guess that means we must be worth, what, 20 times revenue by Matchnet’s model??

Or, is making profit a bad thing in the acquisition business? Apparently. What we should do is up our bids to $5.00/click, lose several million, then be acquired for $20M;-)

Mind you, we would likely never see the money paid out.

What you are referring to is called “deferred revenue”, where you can only report revenue earned within the period covered. The rest is deferred into the next period, e.g. your example of a 6 month payment made in Dec having 5/6th of it put into the next period.

However, I highly doubt that MingleMatch had the $443K in deferred revenue, i.e. they didn’t actually have a loss in 2004. In accounting terms, they did, regardless, as that revenue was not actually earned in 2004.

In “actual” terms, it would seem likely, as well. 6 month payments typically represent a small percentage of total payments. The bulk are 1 & 3 month payments. So, I don’t think it reasonable to assume that their Dec signups were 6 month’s.

I think it fair to say that they were operating at a loss, pure and simple. Matchnet has done this for years, so the two are in good company.