Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  Equities  >  Nasdaq  >  Groupon Inc    GRPN

SummaryQuotesChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsSector newsTweets 

LivingSocial investors take "pound of flesh" in financing

share with twitter share with LinkedIn share with facebook
share via e-mail
0
02/23/2013 | 03:22am CEST

LivingSocial was forced to make large concessions to persuade some of its biggest investors to plow another $110 million into the second-largest daily-deal company, analysts and investors said on Friday.

Analysts say those investors secured advantageous terms potentially at the expense of LivingSocial's other backers. The nature of those terms shed new light on an investment that Chief Executive Tim O'Shaughnessy declared on Wednesday "a tremendous vote of confidence in our business."

For their $110 million, investors got special preferred securities that pay a 3 percent annual dividend, and almost guarantee that they get money before any proceeds from a sale of the company or an initial public offering go to earlier investors, according to a recently updated certificate of incorporation for LivingSocial viewed by Reuters.

The deal also requires LivingSocial to repay some or all of the money from the latest round of financing in four years, if there has not been a liquidity event - such as a sale or IPO. That measure, which protects their investment, would require 75 percent of the holders of the new securities, known as Series G, to vote for repayment, the certificate shows.

"The investors took their pound of flesh for LivingSocial to get this money," Sam Hamadeh of PrivCo, a research firm focused on private companies, said on Friday.

Like larger rival Groupon (>> Groupon Inc), LivingSocial and its rivals have suffered from a rapid loss of popularity of "daily deals" - deep discounts sold on the Internet on everything from spa treatments to dining.

LivingSocial raised hundreds of millions of dollars from Amazon.com Inc (>> Amazon.com, Inc.) and venture capital firms to chase Groupon in the once-hot business. Then Groupon went public in 2011 and subsequently lost about two-thirds of its market value, putting pressure on LivingSocial's own valuation.

In a research report on Wednesday, Hamadeh described the deal as "emergency debt financing." O'Shaughnessy disputed PrivCo's report, so Hamadeh has since updated his research to show that the deal was equity, not debt.

"We wanted to clarify that," Hamadeh said on Friday. "But it's about as debt-like as you can get. They had to give up a lot."

Amazon and LivingSocial declined to comment for this story on Friday.

$3 BILLION VALUATION DROP?

In the latest round, LivingSocial sold 7.5 percent of the company for $110 million. That suggests the company is worth almost $1.5 billion now. In an earlier round of financing, the company was valued at roughly $4.5 billion.

"Yes, this was a down round, which I'm sure is not a shock to anyone," the CEO wrote. "Our main comp (comparison) in the market is down significantly from when we last fundraised."

Taking into account the special rights that the new Series G securities grant to their holders, the valuation is likely lower than $1.5 billion. That is because the preferred shares will effectively give the holders a stake in the company that is larger than 7.5 percent, in most future scenarios.

The Series G securities include a so-called liquidation preference, O'Shaughnessy noted in the memo.

Liquidation preferences, common in later rounds of venture capital financing, give investors the right to get back at least their original investment in the case of a liquidity event.

In the case of LivingSocial, a preference of one times the investment would mean Series G holders get $110 million back from a liquidity event, before other investors receive any proceeds. PrivCo said the round included liquidation preferences up to "several times" the $110 million.

O'Shaughnessy said in his memo that the preference was nowhere near the four times suggested in PrivCo's report, but conceded that it "slides up or down" based on a metric tied to LivingSocial's financial performance. He did not elaborate.

"Those investors are looking for some downside protection," said Lou Kerner, managing partner of The Social Internet Fund, which invests in rapidly growing social and mobile companies.

(Reporting by Alistair Barr; editing by Edwin Chan and Prudence Crowther)

By Alistair Barr

Stocks treated in this article : Amazon.com, Inc., Groupon Inc
share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on GROUPON INC
03/26 GROUPON : Sky Fund acquiring Groupon Israel
03/16 OFF HOURS : Classifieds Middle East chief advises start-ups to ‘embrace th..
03/16 GROUPON : New Groupon Survey Finds 60 Percent of Americans Plan to Start a Perso..
03/13 GROUPON, INC. (NASDAQ : GRPN) Files An 8-K Departure of Directors or Certain Off..
03/13 GROUPON, INC. : Change in Directors or Principal Officers, Financial Statements ..
03/13 GROUPON : Adds Joey Levin to Board of Directors
03/12 GROUPON : Supporting local business? There's an app for that
03/08 GROUPON : Fave Acquires Groupon Singapore
03/03 GROUPON : Hawaii Photographer Recognized As the Best of Groupon
02/28 GROUPON : Deep discounts on tickets for Yanni at Easton's State Theatre, Secondh..
More news
Sector news : Internet & Mail Order Discount Stores
03/23DJTARGET : Jessica Alba's Startup Pulls Bottles of Dish Soap That Were Underfilled
03/21 General Mills' inability to cut prices eats into sales
03/21DJCOSTCO WHOLESALE : A Big Battle Over Little Golf Balls -- WSJ
03/20DJCOSTCO WHOLESALE : Sues Titleist In Battle Over Golf Balls
03/16 Dollar General looks to fortify strong sales growth with pay hikes
More sector news : Internet & Mail Order Discount Stores
News from SeekingAlpha
08:09a Barclays negative on Groupon
03/28 GROUPON : Still Not Cheap Enough
03/24 Apple's Augmented Reality Challenge
03/23 Don't Get Squashed In The New Short Squeeze ETF
03/13 Groupon gives board seat to IAC chief Levin
Advertisement
Financials ($)
Sales 2017 3 145 M
EBIT 2017 88,5 M
Net income 2017 -79,7 M
Finance 2017 848 M
Yield 2017 -
P/E ratio 2017 -
P/E ratio 2018
EV / Sales 2017 0,44x
EV / Sales 2018 0,40x
Capitalization 2 226 M
More Financials
Chart GROUPON INC
Duration : Period :
Groupon Inc Technical Analysis Chart | GRPN | US3994731079 | 4-Traders
Full-screen chart
Technical analysis trends GROUPON INC
Short TermMid-TermLong Term
TrendsBearishNeutralNeutral
Technical analysis
Income Statement Evolution
More Financials
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 19
Average target price 4,84 $
Spread / Average Target 22%
Consensus details
EPS Revisions
More Estimates Revisions
Managers
NameTitle
Richard Williams Chief Executive Officer & Director
Eric P. Lefkofsky Chairman
Michael O. Randolfi Chief Financial Officer
Peter J. Barris Independent Director
Brad A. Keywell Independent Director
More about the company
Sector and Competitors
1st jan.Capitalization (M$)
GROUPON INC19.28%2 226
COSTCO WHOLESALE CORPO..4.16%73 202
TJX COMPANIES INC4.77%51 311
WAL-MART DE MEXICO S A..13.28%38 807
TARGET CORPORATION-25.79%29 623
DOLLAR GENERAL CORP.-7.45%18 858
More Results