Good news, complexity fans! InterActiveCorp
Today, the firm announced that it will acquire catalog and online merchant conglomerate Cornerstone Brands, a privately held enterprise composed of retailers such as Frontgate, Ballard Designs, Garnet Hill, Smith and Noble, The Territory Ahead, and TravelSmith.
Heard of them? Well, except for TravelSmith, me neither. But don't let that sour you on the deal. Cornerstone's top-line growth for the past couple of years has been near 20%, and the reported net price of $720 million is about one times sales -- though there are some unstipulated credits in the form of tax benefits.
For what it's worth, IAC's enterprise value-to-sales ratio is twice that, as is Amazon.com's
Does that make this a good deal? Well, unfortunately, the numbers we got today -- and my clever little comps -- don't tell the tale. In the end, it'll all depend on what kind of synergies -- yeah, I hate the word too -- IAC can get out of the integration as Cornerstone's catalog and Web businesses are shuffled in with IAC's etailers and Home Shopping Network.
As my colleague Jeff Hwang pointed out recently, following IAC's financials is none too simple. But let's try it anyway! Accounting for the upcoming separation of Expedia.com takes away about half of IAC's $1 billion in operating income before amortization (OIBA) for last year. That means Cornerstone's $59 million in OIBA for its last year would come to somewhere around 10% of our hypothetical, retro-future-looking, post-Expedia IAC pie. In other words, it'll be a decent chunk. If the integration goes well, it'll be an even bigger contributor.
The Street's reaction is muted, but investors might be wise to give IAC the benefit of the doubt here. As Jeff mentioned last month, IAC generates some pretty steady and enviable free cash flow, which provides a good buffer for error and greases the wheels for the acquisition strategy. At 17 times free cash flow, it may not be the cheapest stock on the block, but it looks like a good price for a consistent grower.
For related Foolishness:
- IAC's complexity made simple, courtesy of a Fool.
- Is the impending IAC split an elegant solution?
- Relive the panic. Ahh, good times.
Seth Jayson currently trades at less than half EBITDA. He blames his margins. At the time of publication, he owned shares of RedEnvelope.com, but had positions in no other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.