INDIANAPOLIS — More than 20 years after pioneering the online user review business, Angie's List has acknowledged a painful truth: People prefer reviewing companies on another (free) website.
Angie's List (ANGI) on Monday agreed to be acquired by IAC (IAC), the parent company of rival HomeAdvisor, for more than $500 million. The deal comes about a year and a half after Angie's List rejected a $512 million offer from IAC.
The deal, expected to close in the fourth quarter, is the end of an era for Indianapolis' best-known technology company. The new publicly traded company will be called ANGI Homeservices Inc. and will be headquartered in Golden, Colo. HomeAdvisor CEO Chris Terrill will lead the company.
The arrangement raises questions about the future of Angie's List's Indianapolis footprint, as well as how many employees will remain with the combined company. IAC expects to cut $50 million to $75 million a year in costs by the end of 2018.
“There will be cuts,” said Ken Copley, an analyst and portfolio manager with Iowa-based Capital Executive LLC, who follows Angie's List. “You don’t make an acquisition like that and keep everything intact.”
Angie's List has employed up to 1,800 employees in Indianapolis, although it announced a round of 150 layoffs late last year.
Copley said IAC's decision to keep the Angie’s List name could be considered reassuring.
“That’s a positive,” Copley said. “They’re recognizing the brand power of Angie.”
As part of IAC's cash-and-stock deal, Angie's List shareholders can receive either one share of Class A common stock of the new company, or $8.50 per share of Angie's List that they own. That represents a 44.3 premium over Monday's closing price of $5.89. IAC will not pay more than $130 million in cash for the transaction.
Terrill in a statement touted what he considers the growth opportunity for his soon-to-be new company.
“Both Angie’s List and HomeAdvisor have built impressive businesses based on delivering homeowners and home service professionals incredible value,” said Terrill. “We’ve only just scratched the surface of this tremendous market opportunity, given 90% of home improvement transactions are still generated via word-of-mouth."
Angie's List founder Angie Hicks in a statement said IAC and HomeAdvisor "share our vision for what’s possible when it comes to the home services category’s massive potential."
Hicks founded Angie's List in 1995 based on a simple concept. People paid a monthly subscription fee of more than $30 for access to reports and ratings of service providers in hundreds of categories. The subscription also included a monthly magazine.
By 2002, Hicks and former CEO Bill Oesterle grew Angie's List to 100,000 subscribers, 65 employees and $5 million in annual revenue — with dreams of growing much larger.
Angie's List launched in new cities by advertising in local newspapers and on public radio. In the early days, people reviewed service providers not only online, but also through phone calls.
Angie's List realized its national aspirations and grew to nearly 2,000 employees in Indianapolis. The fast-growing company in 2014 announced a $40 million expansion for its east-side campus.
But that expansion never happened. Oesterle canceled it in April 2015, citing the controversy over Indiana's Religious Freedom Restoration Act. Even after state lawmakers amended the law to the satisfaction of other corporate critics, such as Salesforce, Angie's List never mentioned its expansion plan again.
At the same time, investors began to lose patience as Angie's List struggled to grow its user base — and revenue. Angie's List lost traction as people turned toward free review sites ranging from Yelp to HomeAdvisor.
In July, Angie's List acknowledged the challenges facing its business model and dropped its subscription requirement for the first time. Angie's List lost $7.9 million in 2016, a year that current CEO Scott Durchslag called "transformative."
Even after Angie's List spurned IAC's 2015 offer, rumors persisted that a deal eventually would come together. In the meantime, HomeAdvisor opened offices in Indianapolis and hired dozens of former Angie's List employees.
“They had to (sell to IAC),” Copley, the analyst, said. “They weren’t going to make it on their own.”
The combined company, he added, will face pressure from other tech companies, possibly including giants such as Google, Amazon and Facebook.
“They’re going to have to consolidate and really form a viable competitor to these just huge companies,” he said.
Hicks, who has seen her business grow from a small operation to a nationally known brand, promised as much.
“Together," she said, "we will relentlessly elevate home services experiences for an even broader base of customers."