The romance between Huffington Post and AOL was whirlwind, but the hot news site had been planning big for a while.
It wasn't exactly love at first sight between the Huffington Post and AOL but, with the latter now climbing in bed with the former for $315 million, it looks like no one was playing too hard to get either.
HuffPo CEO Arianna Huffington and AOL CEO Tim Armstrong “knew each other” when their paths crossed at New York’s Plaza hotel last November, says Kenneth Lerer, HuffPo's co-founder and chairman until he stepped down today. “It’s like they’d been at the same parties before but never danced together. Now they just hit it off, and started to talk about their visions.”
Read also: Game-Changer: AOL Has Bought Huffington Post
And just that suddenly, Huffington and other shareholders — including three of the digital media’s savviest investors — are walking away with one of the industry’s biggest scores in years.
The HuffPo brain trust has been intently war-gaming its strategy in the last year or so, as the site’s seven-year anniversary in 2012, a typical timeline for private investors to look to cash out, crept closer.
In the months leading up to Sunday's announcement, two other suitors had helped sharpen HuffPo's focus on their end game.
However, neither Yahoo — beset by serious management and business issues — nor NBC Universal – subject itself at the time of a takeover bid from Comcast — ever even made a formal offer.
Still, if anyone had a doubt that the plan was working, the interest indicated that HuffPo would inevitably cash out at a hefty price. The operating trends, with rising advertising and profits, were certainly pointing in that direction.
But the challenge was in cultivating even stronger growth and fine-tuning the exit. “The goal was to continue to build the brand aggressively,” says Lerer. “We knew were were on to something.”
He added: “It just made sense to be able to build the business to a point where potential a buyer would say, ‘I get it. I get it based on its past performance.’ That was always our plan.”
So should the site raise tens of millions more this year to invest to expand? It was an option, but one with a potential drawback — putting the company up for sale only months after the influx of new investment capital probably would mean a smaller return for the last group of shareholders.
A second obvious option was an IPO in a couple of years, but that would likely require that HuffPo was posting $200 million in annual revenue to better the chance for a successful offering. However, hitting that figure seemed remote in the intermediate term.
According to one senior insider, the company posted a profit last year on revenues of $31 million. Revenues were expected to nearly double to $60 million this year, and were projected at $115 million in 2012.
Neither option would be as attractive as the eventual offer from AOL, however. After the two sides hit it off at The Plaza, Huffington Post and AOL soon started finding each other irresistible.
Not hard to see why.
Acquiring HuffPo would significantly accelerate Armstrong’s goal of transforming AOL into a digital media and advertising behemoth, while providing HuffPo with the resources to turbocharge expansion and social, political and cultural relevancy.
According to Lerer, the negotiations went smoothly and swiftly after turning serious in December. In January, snow-bound Armstrong phoned a formal offer to Huffington, who was hobnobbing at the World Economic Forum in Davos, Switzerland.
As announced on Sunday, the final offer includes $300 million cash and $15 million in AOL shares. The cash, according to another insider, is a huge bet for Armstrong – representing a major portion of his reserves. The stock, according to one person familiar with the situation, is largely earmarked for Huffington as part of her compensation for continuing at AOL-owned HuffPo.
Now there’s the real news — HuffPo is only as valuable as Arianna Huffington.