Affinitas Spark Networks

EliteSingles & Spark Networks Talks Merger Deal & Future Growth Strategy In Exclusive GDI Interview

Affinitas Spark Networks

Last week, EliteSingles owner Affinitas announced a surprise merger with Spark Networks, the public LA-based owner of JDate and ChristianMingle.

The merger, a stock-for-stock deal, will create a new combined business called Spark Networks SE, which will be headquartered in Berlin, Germany, and helmed by EliteSingles CEO Jeronimo Folgueira.

The deal comes after a period of decline for Spark and growth for EliteSingles, the former having seen falling paid subscriber counts at flagship brands JDate and ChristianMingle drive revenue down for years.

Affinitas, on the other hand, saw its main properties push a collective 20% revenue increase in 2016, having acquired French brand Attractive World last October for over €10m.

We recently spoke to both parties about the merger agreement, to find out more about how the deal came about, and what the outlook and strategy for the combined company is.

GDI interviewed EliteSingles CEO Jeronimo Folgueira and Brad Goldberg, Spark Networks board member and President of Peak6 – the Chicago investment firm who invested $7.8m in Spark last August.

Read an edited transcript of the conversation below:

Can you give us some background on the deal – how did it come about and when did it all begin to come together?

Brad Goldberg: So on the Spark side, Peak6 Investments, which is the firm that I work for, we made an investment in Spark in August, and as part of that, we had a number of conversations with people to come up to speed and learn about the industry, and we were actively engaged in these background and learning-type discussions.

Then what happened was that Jeronimo reached out to Danny Rosenthal, the Spark Networks CEO, and we looked at that in the initial context of the type of introductory and learning conversations we were having, that were kind of relationship-building conversations. One thing that’s interesting with the dating industry, that is really different from other industries I’ve worked in, is that for the most part people are really collaborative with sharing various types of information around different industry trends that people might be seeing.

And so we had that meeting, and then from there, things shifted because obviously our discussions became different from what we initially expected, and we then worked very quickly over a period of a couple of months, and pulled together the agreement.

Jeronimo Folguiera: All of this happened this year, so we moved very fast.

Logistically, how is this going to work? Obviously it’s a merger and the headquarters are based in Berlin, but will the teams working on the Spark Networks brands stay working in the US, or will they come over to Europe, and the company be completely helmed from there?

JF: Obviously the headquarters will be in Berlin, because that’s where the majority of the EliteSingles operations are, and we are the largest party of the merger. However, we do want to keep a strong presence in the US, and we will have customer service for the US in Utah and an enhanced office in New York City. We are currently reviewing and planning what to do with Los Angeles, but it’s very early stages, so at this moment, we wanted to agree on the overall terms and on the new management of the company. Now that is announced, we can actually start working with the team to figure out what is the right way forward.

So as of this moment, we expect to consolidate some of the operations, but we will for sure keep a strong US presence. Exactly what will be where, in this timetable, that is something we will work on and close in due course over the next few months.

In terms of the Spark Networks team, will they be downscaled?

BG: At this point, all that we have announced is the management team at a top level, and the positions we were able to fill through the process. As Jeronimo highlighted, especially because the timeline has been very short, now that we’ve communicated, teams can start work on implementation and planning.

On the Spark side, our primary strategy has been focused around updates to our technology platform that the teams are working on to release this summer. So that’s been the primary focus – the companies will continue to run as independent companies until the close, which we expect to be in Q4, so there’s time to figure out many of these details.

One of the first tasks, and something that Jeronimo will lead, is working through the technology platform, and ultimately looking at how the roadmap for everything converges. Once you have a plan and a strategy, you can then start to work through other details and best execute on that, but it’s a bit early at this point.

Jeronimo – as the CEO of Spark Networks SE, can you give us an idea of the strategy you are looking to take with the combined company, and how you expect it to play out over the next few years? What markets are you going after and which brands are you excited to work with?

JF: We have a very clear strategy. We now have a portfolio of brands in the long term serious relationship segment of the market, and we want to position those brands in a complimentary way, so our strategy will continue to be basically the same. We will continue to grow EliteSingles, which is our flagship brand and a very strong growth brand, and we feel there are plenty of ways for EliteSingles to keep growing in the United States.

So EliteSingles growth, especially in North America, will be a top priority. We will also look into getting the Spark Networks brands back to growth in the US, but we will also then explore international expansion opportunities. Obviously we bought Attractive World last year, and now we’re looking at launching that in more markets, and based on that experience, we will look at more international expansion opportunities for the new brands we have just brought into the portfolio.

So there are multiple areas, but we will manage these mostly as a portfolio approach, and we will continue to expand our brands in our key markets.

You mentioned bringing Spark’s flagship brands back to growth. How do you plan to do this, and why do you think you are well positioned to turn around these brands, and help them see the growth they haven’t been seeing over the past few years. What will your strategy be, and why do you think EliteSingles can execute on what Spark Networks has been trying to do for the past few years?

JF: Good question. I think it all starts by finalising the new tech platform, which is what Spark has been focusing on over the last year, and they’re nearly there in terms of preparing the new platform, and getting a much more solid technology platform and product to build upon. So that was one of the things that needed to be built first, and that’s what Spark has been doing the past year, and we’re quite happy with the progress that has been made. Basically, the next step will be to grow the brands, and for that we believe the way forward will be to start increasing marketing spend again. Obviously the brands have been declining for years, but also as the result of capping the marketing spend dramatically for years, so we will look into different opportunities on how to start reinvesting in these brands.

BG: I think one of the strengths that EliteSingles brings is their data platform, as Jeronimo was highlighting, and that is a big part, in addition to the core experience, of what’s needed from the Spark properties – the ability to effectively do data-driven marketing. It’s part of modernising the consumer experience, but there will be a big effort to modernise the data platform to get better user base and marketing analytics in place, and that’s part of what we’re looking forward to.

Do you think you’ll be pushing ChristianMingle and JDate into Europe?

JF: We will look at all growth opportunities, and then we will focus on the ones that are basically the most tangible ones, but we will look at all different growth opportunities for the portfolio.

Peak6 signed an agreement with Spark Networks last August, and EliteSingles reached out to Spark more recently for what became this merger agreement – what attracted you both to Spark Networks as a potential partner?

BG: The slightly longer history, to go a bit deeper into the story, is that there is an investor named John Lewis who runs a fund called Osmium that ran a proxy battle approximately three years ago to take control of the board of Spark. Peak6 is an investor in Osmium, and when John won the proxy battle, a group of us from Peak6 began, with the new board, to look at the company and assess opportunities. And at that time, two years ago, we came close to doing a deal like the one we did last August, where Peak6 would have brought capital and also operating expertise to the company, and what happened was, at that time, the board tried to go for a more traditional route, and then when things didn’t work out exactly as they had hoped, the conversations with Peak6 restarted around the deal we had discussed previously.

From a Peak6 perspective, first there was a familiarity with the company, and I think there was definitely a belief that the brands are strong and iconic brands, and that there was an opportunity to get things going on the right path. So we made an approach, putting the right technology platform in place, getting data in place, and putting in place the data-driven marketing – which are things that fall within our capabilities in our operating group with the firm. So we thought that there was an opportunity and a great scope there.

I think when we look at this opportunity to combine with EliteSingles, it really allows Spark the company to accelerate so many of the things that we had underway, and I think if you were to look at a macro level, it feels like the trends driving consolidation are accelerating and things are stronger than they may have been nine months ago.

JF: As you know, I’ve been talking very openly for nearly two years about consolidation, and why I believe strongly that scale is the way forward for dating companies. You need enough scale to be able to be highly profitable, and to be able to invest in product and remain competitive. So this obviously made a lot of sense for us.

Jeronimo, as the CEO of the company, where do you think this puts the combined company in terms of the global market, do you hope it can one day rival companies like the Match Group and The Meet Group?

JF: The Match Group is far larger than us, so I would not dare to say we will rival the Match Group, I think they are probably bigger than all the other companies combined. I think we will have a clear role in the industry going forward, because we will be one of the largest players in the industry, and we will be one of the few companies who have a portfolio approach with multiple brands, obviously along with the Match Group and The Meet Group. And we will also be one of the few companies in the industry that is publicly listed. So in that sense, it puts the combined group in a very unique positioning.

We also see ourselves as quite unique in a way that we have a very clear positioning of our brands. Our brands are obviously all premium subscription, and are all targeted at serious long-term relationships – all in that end of the spectrum within the dating space. So we like the focus that the new group has.

What is the estimated financial position of the combined company?

JF: The combined group will have around half a million paying members, and the combined group is expected in 2018 to generate between $118m and $122m in revenues, and the group is also expected to generated between $18m and $22m in adjusted EBITDA.

What is the roadmap for the rest of the year? You are expected to close in Q4, what will happen between now and then?

JF: Effectively, up to closing, each company will keep operating on their own, but we will see how much work we can do together between that time. And then from close is when we will start all the integration. Obviously we will use the next few months to plan out the integration plans, so when the time for closing comes we will be in a very strong position to execute. But we will not execute anything until then.

The way we see 2017 is more of a transitional year, where we get the deal done, we plan everything, and then start executing in Q4. But effectively, 2018 is the year we have in mind for in terms of targets and what we actually want to achieve together.

Read more about the Spark Networks and Affinitas merger here.