Ancestry Closes Investment Deal

There are some puzzling comments in the May 23, 2016 announcement from Ancestry.com that Silver Lake Partners and GIC have successfully completed their previously announced investment transaction. The results of the investment action are outlined in the press release as follows:

As a result, Silver Lake and GIC each hold equal minority ownership positions in the company. The Permira funds, Spectrum Equity and Ancestry management, including President and Chief Executive Officer Tim Sullivan and Chief Financial and Chief Operating Officer Howard Hochhauser remain as meaningful equity investors and, along with GIC, continue to own a majority of the Company.

The amount of the investment is not disclosed but the two new investors are said to have acquired "substantial equity stakes in Ancestry at an enterprise value of approximately $2.6 billion." This could be read to imply that the amount paid was the $2.7 billion. But a better reading of the statement would be that the total amount invested was based on a valuation of Ancestry.com of $2.7 billion. I would base this guess on the First Quarter 2016 Financial Statement that shows Ancestry.com LLC with a value of approximately $1.6 billion dollars. See Ancestry.com LLC Reports First Quarter 2016 Financial Results.

The question of who owns Ancestry.com LLC now is partially answered by the following statement from the May 23rd press release.

In connection with the closing of the transactions, the Company announced an expanded Operating Committee including: Mike Bingle, Silver Lake; Stephen Evans, Silver Lake; Jason White, Silver Lake; Eric Wilmes, GIC; Alex Moskowitz, GIC; Andrew Skrilow, GIC; Vic Parker, Spectrum Equity; Tim Sullivan, Ancestry; and Howard Hochhauser, Ancestry.

Silver Lake and GIC each have three representatives on the "Operating Committee." This is what an LLC has instead of a Board of Directors. The management of the company is defined in its Limited Liability Company Agreement. Spectrum and each of the Ancestry.com LLC principals have one position. It is rather simple to figure out that with 9 positions, a controlling decision is going to take at least 5 votes. Together, Silver Lake and GIC can control the company. Either of them would have to have at least two of the other investors to take control. It appears that the future direction of the company will be up to whether or not Silver Lake and GIC agree as to any major change in strategy. Tim Sullivan and Howard Hochhauser can exert a lot of control if it turns out that Sliver Lake and GIC are at odds.

What does this mean for those of us who are using the Ancestry.com program regularly? There is one very enigmatic statements in the press release: "In addition, Ancestry today closed the previously disclosed employee tender offer." This is clarified somewhat in a Form 8-K filing with the United States Securities and Exchange Commission and further designated, "CURRENT REPORTPursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934Date of Report (Date of earliest event reported): April 1, 2016 (March 31, 2016)." That report states:

In connection with, and contingent on the closing of the Investment, Parent intends to offer a liquidity opportunity to employees who own shares or vested options. Parent and certain affiliated entities will offer to purchase from such employees any or all vested shares or options at the same value per share as paid in the Investment. The closing of the employee tender offer is expected to be approximately simultaneous with, and will be conditioned upon, the closing of the Investment, though the expiration of the tender offer is expected to occur before the closing

Essentially, the equity positions of the employees is being bought out.

What will this mean in the future? We will just have to wait and see.