Initial Public Offerings and Public Companies and Banking & Finance and Internet and Investing and Angie's List and Manufacturing & Technology and Technology

Investors across city hit jackpot in Angie's List IPO

November 26, 2011

It isn’t just the executives and board members of Angie’s List Inc. who are feeling giddy in the wake of the company’s $114 million initial public offering on Nov. 16. It’s investors all over town who have poured money into the company as it repeatedly raised capital in recent years.

The euphoria is understandable. The initial public offering price was $13, the high end of the range projected in Securities and Exchange Commission filings. That price was more than quadruple the average price of $2.76 paid by prior investors in the company, the filings show.

The stock shot as high as $18.75 in the first hours of trading before losing momentum as the overall market swooned. It now trades for around $16, giving Angie’s List a stock market value of more than $890 million.

“We are very pleased with how this has shaken out. That’s all I can tell you,” said John Ackerman, co-founder and managing director of locally based Cardinal Equity Partners.

Cardinal began investing in Angie’s List in 2000. It sold 104,000 shares in the IPO, raising $1.3 million, and holds another 951,104 shares now worth $15.2 million.

Also hitting the jackpot was City Financial Corp., the locally based parent of City Securities Corp. It sold 400,000 shares in the offering, raising $4.8 million, and holds another 400,000 shares worth $6.4 million.

City Financial CEO Michael Bosway could not be reached Nor could John Biddinger, another City Financial executive who serves on Angie’s List’s board.

Ackerman, the Cardinal Equity co-founder, said he became familiar with Angie’s List because of personal ties to Bill Oesterle, Angie’s List’s CEO. He said he backed the company because he believed it had a strong management team and a winning business model.

The firm, a provider of online consumer reviews for everything from roofers to doctors, charges a membership fee to its more than 1 million customers—who provide the reviews and have exclusive access to them.

Unlike other Internet services, Angie’s List doesn’t permit anonymous postings, which it says “are inherently susceptible to outright manipulation. While anonymous and potentially misleading reviews may be good enough for helping consumers choose a bar or a restaurant, for consumers hiring a roofer, pediatrician or veterinarian, the stakes are simply too high,” Angie’s List said in its prospectus.

Ackerman added: “From a consumer standpoint, I love the product. From a business standpoint, it is a very strong business model.”

The prospectus lists only shareholders who sold stock in the offering, and those who are board members or hold major management posts. Among the hodgepodge of sellers were Michael Maurer, an owner of IBJ Media, whose IRA cashed out all 13,328 of its shares, and Willis Huiras, an attorney with Davis & Sarbinoff, who unloaded all 3,336 of his shares.

Angie’s List officials also sold stock but have lots of skin remaining in the game. For example, Oesterle divested 184,000 shares, raising $2.2 million, but still owns 3.5 million shares worth $56 million.

The company raised $76 million in the IPO. Selling shareholders collected another $31 million.

The big question now is whether investors’ paper profits will swell or evaporate. Despite the success of the Angie’s List IPO, skeptics abound who fixate on the company’s massive losses and huge marketing expenditures. Red ink since the beginning of 2006 totals $129 million. Advertising costs were $30 million last year and $48 million through the first nine months of 2011.

“This is not a business I would invest in, and the stock could see substantial downside, once all the mania passes,” said Troy Marchand, an equity trader and research analyst with Kirr Marbach & Co. in Columbus, Ind.

Yet investors bullish on the stock note that once Angie’s List signs on customers, they often stick around—so far in 2011, for instance, 76 percent of members renewed after their first year. Bulls think that shows the steep marketing investments are setting up the company for long-term success.

If they’re right, the millions of dollars early backers made in the IPO will be just the start.

Herb Simon’s $16M stock sale

Herb Simon this month sold more than 121,824 Simon Property Group Inc. shares, generating nearly $16 million.

Simon, chairman emeritus of the shopping center company, cashed in the stock Nov. 9-11 at around $128 a share, just shy of the all-time high of $131.21 reached Nov. 8.

Regulatory filings show sales are unusual for Herb Simon. His last big insider transaction was in February 2010, when he bought 328,598 shares for $25.8 million. The per-share price then was about $78.51.

Herb Simon remains a major Simon stockholder, with millions of shares.•

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