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Is It Finally Time To Bet On A Spark Networks Turn Around?

|About: Spark Networks, Inc (LOV)

Summary

VC type investment with tremendous upside.

Significant transformative event as part of last earnings release.

Technically, recent price and volume trends point to a bottom.

As part of the most recent Spark Networks LOV quarterly release, significant transformative events were announced. From the 8/10 release, an agreement with Peak 6 was reached as follows:

The highlights of the PEAK6 agreement:

  • PEAK6 purchased 5.0 million shares at $1.55 per share, resulting in $7.8 million of cash proceeds
  • PEAK6 now owns approximately 16% of Spark's outstanding shares
  • Pro Forma for the agreement, Spark's Q2 2016 net cash position increases from $3.1 million to $10.9 million
  • Spark issues PEAK6 warrants to purchase 7.5 million shares with an exercise price of $1.74 per share. These warrants vest as to 50% of the shares when the share price reaches $2.50 per share and the remaining 50% of the shares vest when the share price reaches $3.50 per share
  • PEAK6 executive Danny Rosenthal to become Chief Executive Officer and will join the Board of Directors
  • PEAK6 Chief Architect David Budworth to become Chief Technology Officer
  • PEAK6 Chief Marketing Officer Lisa McLafferty to become Chief Revenue Officer
  • PEAK6 President Brad Goldberg to join the Board of Directors

The key take aways here are that there is a new management team with significant operational experience at leading Web/app businesses. The balance sheet has been re-capitalized with a large infusion of cash. Through warrants, there is significant incentive for the management team to get the stock to $3.50 which align with the interests of shareholders.

Peak 6 is a well respected investment firm. What they accomplished with this transaction is tremendous. It is basically a VC type round at a $37 million valuation. They were able to force a change of control while only putting up limited capital ($7.8 mil on a $37 mil company) and still achieved a significant stake in the company through warrants. Most importantly, and what is different from most VC/private equity investments is they maintained liquidity with a publicly traded ticker which is beneficial for all stake holders. With the change of control, and the operational experience they bring to the table, they will be able to quickly implement a turn around.

With fresh cash on the balance sheet, and a fresh look by a top management team, this is a prime candidate for big gains. Technically, after the news the stock sold off to account for the dilution from the warrants. Last week the stock stopped going down and consolidated. On Friday LOV was up almost 8% on 10 X average daily volume on no news. This is a clear signal and time to bet on a turn around.

Disclosure: I am/we are long LOV.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.