November 11, 2019

Breakingviews: Blackstone fashions itself as tech’s anti-SoftBank

by Breakingviews.

Blackstone and Bumble make an odd couple. But not an illogical one. By taking a majority stake in the company that owns the dating app at a valuation of $3 billion, the buyout firm founded by Steve Schwarzman is fashioning itself as the opposite of Japanese tech mega-investor SoftBank.

While buying a slice of MagicLab is not Blackstone’s first tech deal, it’s a useful gauge of what the buyout shop is trying to do with its recently launched Growth division. Or more importantly, what makes it different from SoftBank, which has ploughed billions into high-growth loss-making companies from Uber Technologies to imploding shared-office company WeWork. The company run by Masayoshi Son reported a $5 billion write-down earlier this week.

First, there’s profit – or the potential for it. If Bumble’s publicly-traded rival Match is a guide, online dating is an activity that can generate actual net income. The $20 billion owner of Tinder generated $402 million of earnings in the first nine months of the year, 12% higher than a year earlier. MagicLab’s finances aren’t public but Schwarzman said on Wednesday that he tends “not to do investments in companies that are not profitable.”

Second, there’s a visible exit down the line. Match has given shareholders an average 39% annual total return over the past five years. That would give MagicLab a set of coattails to ride on if Blackstone decides to exit through an initial public offering. Besides which, Match Chief Executive Mandy Ginsberg is a potential buyer of Bumble in future – her company made unsuccessful offers in the past.

While dating apps aren’t exactly Blackstone’s wheelhouse, they do lend themselves to the kind of acquisition-led growth the buyout shop has used in its real estate investments. Both Match and MagicLab house different brands that utilize basically the same models and mechanisms to woo different communities. Bumble sits alongside seniors-focused dating service Lumen and gay app Chappy, making MagicLab potentially more like a roll-up company than a mono-brand tech firm.

Blackstone does share two things with SoftBank: ambition and cash. Schwarzman’s outfit wants to get from over $500 billion of assets under management to $1 trillion. Buying Bumble’s owner won’t get him much closer to that target, but at least, unlike Son, he’s picking his partners with care.

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