Wednesday, October 17, 2007

TGN acquired - what's in it for us?

A majority interest in The Generations Network, Inc. has been obtained by Spectrum Equity Investors for $300 million. The full press release can be seen on their Press Room here.

From the announcement, it appears to me that this is a financial investment - the majority owners expect to make a significant profit from the continuing operations of the company. My observations of similar deals in the industrial world is that an investment group like this might eventually sell the holdings for a profit after the company significantly increases in value.

We don't know the financial history of The Generations Network, Inc. because it has been a privately held company. It likely will continue to be a privately held company, with different shareholders and a revamped board of directors.

The interesting paragraphs in the press release, for me, were the following:

"The Generations Network properties have more than 900,000 paying subscribers and receive 8.2 million worldwide unique visitors per month (© comScore Media Metrix, August 2007). In the last 18 months, the company has solidified its position as one of the largest and most profitable subscription businesses online with success in several areas:

"• is the world’s leading online family history resource, with more than 5 billion names from historical records, unmatched and proprietary search technologies and an engaged and passionate community of more than 2.5 million active members."

This is followed by a long list of each of TGN's franchises and the progress made by each in the last year or so.

So there are 900,000 paying customers - at perhaps $200 per subscription on average - that's about $180 million annual income from subscriptions alone - add on the software, books, and other income; so the annual income is probably in the $150 to $250 million range. Since the investors had to pay $300 million for a majority interest, that means that the value of TGN is at least $600 million. We don't know the profit picture since the company is privately held - but an investment group like this would look for a company with at least a 10% profit margin, and perhaps a lot more.

In the current competitive environment that is the genealogy commercial business (with several startups in the last year - e.g., WVR, Footnote, GenealogyBank - and the ambitious plans of FamilySearch Inc.), I think that TGN needed a cash infusion to keep the growth going so that they can be a long-term competitor in the business. The investors wouldn't make the investment without a commitment to the long-term, so that bodes well for the customers of TGN. The cash infusion also provides an opportunity for additional acquisitions of smaller companies that might add value to the TGN stable.

After all of the public relations disasters for TGN this last year (e.g., the FHL/FHC decision, the IBC embarrassment, the FTM 2008 problems), it wouldn't surprise me if the new management team brings an improved PR and communications skill set on board.

You can always tell when an industry is growing and burgeoning - there are buyouts, investments, startups, partnerships, etc. For genealogy research consumers like most of us, this is a really good thing. Competition keeps subscription prices relatively low and the companies have to add more content in order to stay competitive. It's all good!

Please note that I have no financial interest in any of these enterprises - although I am a subscriber to Ancestry. I am also not a financial expert or analyst (it probably shows in the comments above, eh?) - just a really interested observer and customer.

UPDATE 2 PM: Leland Meitzler has an interesting link to a TechCrunch blog where this acquisition is discussed. One claim there is that yearly income for TGN is in the $150 million range, which seems reasonable to me - with US subs at $155, World subs at $299, and partial subs for certain countries, plus any discounts or special offers that reduce the initial subscription price.

It also compares TGN to and as if they are comparable. To my mind, they are nowhere near comparable. The commenters do think that this is a good deal for the buyers.

I edited the original text above as shown in purple.

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