The next big deal on Groupon (NASDAQ:GRPN) could be Groupon itself. Recode is reporting that the leading online provider of local flash sales is reaching out to possible suitors. At least two sources tell Recode that Groupon executives and investment banking representatives have been contacting several publicly traded companies in order to smoke out a potential buyer.
The biggest takeaway for investors is that these buyout stories rarely pan out. It could just be bogus noise, the seller can get cold feet, or we may never see a serious buyer step up. It's pretty embarrassing to have an auction with nobody raising a bidding card, but it certainly happens.
Groupon's in pretty good shape for a company that is reportedly on the auction block. Revenue has posted year-over-year declines for nine consecutive quarters, but that has been mostly by design. Groupon has been unloading underperforming international operations and weaning itself off low-margin merchandise closeouts. It's been profitable in two of the past three quarters. Groupon also has a relatively clean balance sheet flush with cash. The stock is trading well below last year's near-term highs, but the shares have still more than doubled from their early 2016 lows. Groupon would look good on the arm of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Alibaba (NYSE:BABA), or IAC (NASDAQ:IAC). Let's go over why all three could step up to take Groupon off the hands of its current shareholders.
A widely circulated story before Groupon went public was that it turned down Alphabet's Google offer to buy it out in a $6 billion transaction. The joke's on Groupon now. It commands a market cap of $2.5 billion now, and with a decent chunk of that in cash, we're eyeing an enterprise value just below $2 billion.
One can argue that Alphabet no longer needs Groupon. Promoting daily deals is no longer the booming niche it was a decade ago, and Alphabet's interests have expanded. However, Google still feasts on local search, and that is where Groupon would help it cash in on queries for local venues. Groupon would help pad Alphabet's already loaded Rolodex with contacts of various local businesses willing to pay to get noticed, and that's still tempting now without having to cost Alphabet $6 billion to seal the deal.
China's leading e-commerce platform already owns a piece of Groupon. It acquired a 5.6% piece of Groupon two years ago. It's important not to read too much into the minority stake. Alibaba owns pieces of many Western dot-coms, often just as a learning exercise.
However, with group-buying sites growing in popularity through China, it wouldn't hurt to own a pioneer in this field that can catapult global aspirations for Alibaba. This one may be a long shot, but if Groupon is up for sale, it's hard to dismiss Alibaba as a landing spot.
IAC was floated as a potential buyer last summer by B. Riley analyst Sameet Sinha. He pointed out that IAC CEO Joey Levin has been on Groupon's board since 2015, and that's still the case. Levin obviously knows Groupon well, and it's the most likely candidate.
IAC's biggest businesses these days are online dating and the home services referral business it picked up when it acquired Angieslist. Groupon's local emphasis would fit right in. If Groupon is for sale, IAC makes a lot of sense, but we know that sometimes that isn't enough.