Not a Match: Legal battle surrounding Tinder’s valuation turns ugly
November 8, 2021
3 min read
What's going on here?
Tinder founders finally go to court amidst a long-running dispute accusing IAC and Match Group of significantly undervaluing the company.
What does this mean?
Sean Rad, Tinder’s founder, has accused IAC and the Match Group (the parent companies of dating apps such as Hinge and OkCupid) of artificially devaluing Tinder right as the company was picking up in popularity. The valuation of $3bn conducted by Barclays and Deutsche Bank led to Match Group’s acquisition of Tinder, but evidence has suggested that former Tinder CEO Greg Blatt had valued the company at a staggering $12bn in 2016. Due to the undervaluing, Tinder shares had a lower value than they would have otherwise, meaning IAC was able to acquire the shares for a much lower amount by downplaying the app’s potential. Tinder is now seeking $2bn in damages.
Rad claims that the devaluation occurred before Tinder’s employees were able to exercise stock options, which would have entitled employees to purchase shares at the higher valuation price before a certain time limit, and instead watered down the value of the shares. This solidifies the claim that Barry Diller (Chairman and Senior Executive of IAC) effectively sidelined Rad and his partners by falsely portraying a “doom and gloom picture of a company whose meteoric rise was about to plummet”, as said by Orin Snyder from law firm Gibson Dunn (described by The Verge as “the deadliest trial lawyer in tech.”) Match Group and IAC refute these claims by alleging that Rad was involved throughout the procedures, and that he did not voice his objections before rapidly selling shares.
What's the big picture effect?
The dispute outlines a classic ‘battle of the experts’. While Rad’s lawyers point out that Tinder’s revenue was double the projection used for the 2017 valuation, they also valued the company at $13bn as of 2017. Match Group has denied this amount on the grounds that it exceeds the valuation of all Match Group-owned companies. Additionally, Tinder’s revenue in 2018 was $800m, nearly twice as much as the $454m estimate by IAC and Match Group. This raises questions surrounding the validity of valuation procedures conducted internally, and highlights difficulties in the process of estimating company finances. This is particularly true in the booming technology space, where valuations rocket despite the product being intangible and difficult to value.
The imbalance in power between Tinder and Diller’s IAC reflects an ongoing struggle between founders and investors, and investors exploiting often inexperienced and new companies. IAC and Match Group have refuted allegations, stating that Rad now suffers from “seller’s remorse”, a plausible allegation considering that Rad exercised the remainder of his stock options for $94m in 2018. Snyder, the Gibson Dunn lawyer acting for Tinder, has further accused IAC of violating its contractual duties towards Tinder by refusing to pay the founders what they ‘rightfully earned’. Beyond this, IAC and Match Group have been accused of covering up alleged sexual misconduct by Blatt in an effort to keep him in power throughout the valuation, allowing him to ‘corrupt’ the valuation process.
Currently, Tinder has been valued at a whopping $42bn by Morgan Stanley, whereas Match Group has an enterprise value of over $45bn. Last July, Match Group separated from IAC and has witnessed an uptick in share prices of 36%, and Tinder represents a large area of growth. Should Tinder achieve success on this lawsuit, Match Group is likely to experience a long line of legal expenditures, with some estimating that the proceedings could continue for over five years.
Report written by Megha Vinesh
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