Valuing Online Genealogy Companies -- A Legal Perspective

Within the last few months, the Chancery Court of Delaware issued a Memorandum Decision in the a case entitled, "In re Appraisal of Ancestry.com, Inc." This 57 page document gives some valuable insight into the inner workings of the large online genealogy companies. The subject of the Court's opinion would normally only be of interest to very sophisticated investors, but the subject matter, Ancestry.com, Inc. has just been in the news because of speculation of another sale of the company.

The more recent news release by Reuters.com, mentions that Ancestry.com, Inc. is contemplating an "auction" sale. You can see from the above legal Memorandum that the lack of such an auction sale was the basis for a lawsuit concerning the valuation of the company when it was purchased by its present owner, Permira Advisors, LLC. Since the company is presently privately owned, some of the previous issues regarding a fair price paid to stockholders will not likely be publicly aired.

The Court Memorandum gives a brief, but insightful, analysis of the more recent history of Ancestry.com, Inc. and opens up so perspective to genealogists about the business side of these companies. I especially liked the comment the Court made about the subscribers to Ancestry.com and comparing them to a "hamster wheel of new people coming in and people existing at the same time."

One part of the Memorandum deals with the issue of "Competitive Forces." I found this most interesting and here is a quote from the Memorandum:

Ancestry faces several competitive forces, including a number of start-up companies and an increasing amount of free archived information more readily accessible by internet search engines. Additionally, the Church of Jesus Christ of Latter Day Saints operates a website that has resulted in a ―competitive dynamic for Ancestry. The website, FamilySearch.org, provides free online access to some of the Church‘s extensive resources—the Church has aggregated ―what's recognized as the world's largest collection of data and content that would be valuable for people researching their family history. This collection previously enticed interested individuals to travel to Salt Lake City, but the FamilySearch.org website has begun digitizing the collection and ―includes a lot of the same features and functionality as Ancestry.com.

Well, I do think that the FamilySearch collection of data, still "entices" people to travel to Salt Lake City, Utah, just as I did yesterday, but I am surprised that the Court viewed FamilySearch and Ancestry.com as "competitors." The availability of a free source for some documents may have an effect on the price people are willing to pay for additional documents and services, but I do not view a free website as being in competition with any of the subscription websites. I think it also interesting that the Court failed to note the existence of all of the other Ancestry.com websites, including its "free" websites such as FindAGrave.com and RootsWeb.com.

Here is another very interesting quote from the Memorandum:

At an April 19, 2012 board meeting, Qatalyst Partners (―Qatalyst), a financial advisor, made a presentation to Ancestry‘s directors. In this ―state of the union presentation, Qatalyst raised as among its concerns that Ancestry ―was getting people that were less engaged in the hobby and who would not maintain their subscriptions, though the Company‘s subscription base had been growing as a result of Who Do You Think You Are?. 

Qatalyst noted that Ancestry‘s subscription-based service raised questions regarding ―the size of Ancestry‘s available market, [and] the degree to which Ancestry had already saturated that market. As Jonathan Turner, a Qatalyst Partner, testified at deposition: 

There are only so many people who are interested and have the time to be able to devote a significant amount of their free time to genealogy and using the company‘s product and be willing to pay for it. And that was a—that was a concern because once the company hit . . . single-digit millions of subscribers, at this point the business was largely U.S. with a little bit of—a little bit of U.K. How many people left are there? 

These opinions seem to fly in the face of the promotional statements made by those who work for and support the large online database companies. I am also surprised at these statements that seem to ignore the number of members of MyHeritage.com which, according to the website today, has over 76 million members compared to Ancestry.com's 2 million or so subscribers.

You may want to review the Memorandum yourself and draw your own conclusions.