Is There a Black Sheep in Ancestry.com's Family?

After months of chatter, Ancestry.com (Nasdaq: ACOM  ) is finally getting hitched.

European private-equity firm Permira is agreeing this morning to a $1.6 billion deal that will take investors out at $32 a share.

The deal represents a buyout at a modest 9.7% premium to where shares of the leading genealogy website operator closed on Friday.

Shareholders were probably holding out for more, and you're already starting to see a wave of hungry attorneys trying to drum up interest in class action lawsuits. In the end, it probably doesn't matter.

There were reportedly several potential bidders kicking the tires of the premium website. If the prospects were that good, do you really think Ancestry.com would've settled for an acquisition in the low $30s? After all, recent reports indicated that Permira was the last bidder standing with a $32 offer. Ancestry.com didn't want to cash out for less than $38. The initial reports were suggesting a buyout would take place in mid-to-upper $30s.

Now that $32 is the price -- validating the report -- we have to assume that Ancestry.com wasn't the one holding the stronger hand.

Sure, there was speculation back in July that Facebook (Nasdaq: FB  ) or Google (Nasdaq: GOOG  ) would dive into the bidding war, but that was really little more than wishful thinking on behalf of matchmaking analysts.

Facebook already has its own way of getting families together, and the last thing it needs is to be associated with a provider of premium lifestyle services. It routinely needs to be squashing the "Facebook is going to start charging its users" rumor. Why feed that fire? Google would make more sense -- especially since it could ultimately offer an ad-supported version of Ancestry.com's deep content -- but it could just as easily roll out its own platform.

Perhaps more important for investors, today's buyout hints that Wednesday's quarterly report out of Ancestry.com isn't going to be so hot. After all, why agree to a deal now if blowout financial results are coming?

Yes, I predicted over the weekend that Ancestry.com was going to beat Wall Street's bottom-line expectations. Why not? The former dot-com darling has blown past analyst profit targets with ease over the past year.

 Quarter

Estimated EPS

EPS

Surprise

Q3 2011

$0.35

$0.40

14%

Q4 2011

$0.34

$0.40

18%

Q1 2012

$0.23

$0.30

30%

Q2 2012

$0.41

$0.44

7%

Source: Thomson Reuters.

However, today's move suggests that I'll either be eating crow on Wednesday or that the company's guidance will be iffy.

Ever since Comcast's (Nasdaq: CMCSA  ) decision to end Who Do You Think You Are? -- the primetime show that it produced in cahoots with Ancestry.com where celebrities dig into their ancestors -- it seems as if the company has been angling for an exit strategy. Subscriptions did top 2 million members this summer, but either Ancestry.com is unsure about its future or it feels that now is the time to hand the baton to a more global company with dreams of taking it to the next level.

It's not the way that investors wanted this family reunion to end, but it's better to have a bittersweet dessert than no treat at all.

Keep digging?
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Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Ancestry.com, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Ancestry.com, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 22, 2012, at 5:28 PM, hiddenflem wrote:

    Hi Rick, nice takes but i think there are more points that could be discussed. It seems to me that insiders get to continue to enjoy the ride while the rest of us are being asked to get off at $32...they are maintaining significant ownership stakes in the company. So I wouldn't necessarily infer that earnings will be poor. I wonder what the odds are that shareholders vote against this deal...I suppose ownership vetted this through major holders?

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