Arbs Are at Play with Bankrate – Higher Price Likely

First off, let me point out that the acquisition of Bankrate (RATE) was on my list of 12 2009 Predictions and I previously called for an acquisition in my write-up Final Option for Bankrate: Find a Buyer.

Consensus was estimating $55 million in EBITDA for Bankrate in 2009 but management stated that they would likely miss that estimate. RATE reported $22.5 million in EBITDA in the first half of 2009. I assume they could match that run rate and produce $45 million in EBITDA for the full year 2009. Assuming that EBITDA figure, the acquisition multiple is 12.7x.

I looked back at my notes and saw that Internet acquisitions over the past few years were consummated at a mean 20x EBITDA multiple. However, given the depressed economic environment and RATE’s current challenges, a discount to that mean multiple is warranted.

I think a 14x multiple would properly reflect the current challenges but that branded online advertising could rebound in 2010.

Bottom line, I think the Apax offer is too low. A 14x multiple would value the shares at $31.50.

If Apax doesn’t raise the offer, then another acquirer should step in, particularly as Amazon (AMZN) just paid close to $1 billion, mostly in stock, to acquire Zappos.

Possible acquirers can include IAC (IACI), Yahoo (YHOO), and Microsoft (MSFT) or maybe another private equity firm will see more value in owning RATE.

Comments

[Long CSUH:]

I agree with the low valuation part, however, I think what management did was a timely move. While, the current premium might look meager, its pretty high if you consider that the stock price would have tanked 20-30% post the announcement of dismal earnings. I do not think their dismal result is purely a function of a slump in display advertising, infact their their website was more fuller this quarter than last one. I think what hit them most was credit card and mortgage segment which should imrove as situation gets back to normal.

Jul 23 06:37 AM

[Moose2009:]

As a prior Bankrate employee, I can assure you that the various aquisitions of 2008 were a preliminary act of desperation to plump up their financials with Goodwill. A combination of bad management and poor economic climate led to the company's eventual failure. Sorry, but they had it coming.

Jul 23 02:41 PM

[Michael Comeau:]

I'm actually considering buying out-of-the-money puts on Bankrate. If the deal somehow goes sour, the stock will collapse. Management said it has support of 24% of shareholders - if enough put up a stink over price (which I think is fair) this deal might not work. It's a low probability, high-reward potential event - might be worth throwing a few % of my portfolio in OTM puts.

Jul 23 05:48 PM