DealZone

Penthouse aka FriendFinder finally files for IPO

December 23, 2008

After adopting the more innocuous name of a company it acquired last year, “FriendFinder Networks,” Penthouse Media Group filed for a $460 million IPO on Tuesday.

Penthouse bought FriendFinder– which runs sites that help subscribers find friends of all sorts, from FrenchFriendFinder.com for those interested in working on their French, to hook-up sites AdultFriendFinder and BigChurch.com, a site for single Christians –for $500 million a year ago.

The idea was to tap into the online adult market and become less of a publishing company than an internet company. The purchase also included popular video chat site cams.com, an adult site which helps new friends connect visually.

In March, Penthouse had said it planned to raise $250 million in an IPO in the second quarter. But as the IPO market floundered in the second half of 2008, those plans got scuttled.

FriendFinder joins a pipeline of IPOs facing a harsh climate. But this IPO in particular faces two major challenges, despite the old adage that sex sells: the proceeds will be used largely to pay off debt, something investors generally resist, and arch-rival Playboy has seen its shares wilt in 2008,  falling 78 percent.  What’s more FriendFinder Networks’ profits fell more than 20 percent between 2006 and 2007.

Still, social networking sites remain popular- in its SEC filing, FriendFinder claims to have 270 million members, who presumably need companionship, even in a recession.

Comments
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I thought your story says that investors LIKE it when IPO proceeds are used to pay off debt?

 

In effect, when an IPO such as the one being proposed, is completed, the stock purchasers of the entity have offered ice thin liquidity and reduced debt load, which is the basis of the current economic freeze the world is experiencing, in exchange for a piece of paper that encourages future actions similar to those management actions of the past.

Change management is the relevant subject. Changing actions will allow our economic engine to reset itself away from excess spending, debt, and an out of control “greed” mindset which drove leverage which is now driving unemployment.

IPO issues that are equity based supporting a great and well managed business model are good for all. Those issues that supply bail out for previous mistakes and bad management decisions tend to only be good for those that benefited from the past leverage mistakes.

The investment bankers of the world can be a needed brake, if you would, when debt offerings come to light that only support a greed mentality.

Gene Sartin
President & CEO
The Transition Companies
http://www.transitioncompanies.com
gsartin@transitioncompanies.com

 

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