Andre Compte-Sponville, the French philosopher, argues that capitalism is neither moral nor immoral, but amoral. As an economic system, capitalism is outside any moral concern. Economic objectivists tend to also support capitalism as an objective existential system. Basically, if the numbers are good, the investment should be good.
Over the next few weeks, this theory will be put to the test on Bay Street.
According to a report today by the Globe and Mail, Avid Life Media plans to go public via an RTO and raise approximately $60 million concurrently in an effort to acquire Guelph Ontario-based Moxy Media. It just so happens that Avid Life owns Ashley Madison, the adultery-friendly website that famously offered free subway rides in return for billboard ads on the TTC. A public uproar ensued, and the TTC very publicly rejected the offer. (IMHO, this free PR campaign by Ashley Madison should win awards for ingenuity). Avid Life also owns CougerLife.com, EstablishedMen.com, and HotNotHot.com, three other online lifestyle properties that cater to ...uhh...specific dating needs.
Notwithstanding, GMP, arguably one of the top shops on Bay Street, is leading the syndicate for this not insignificant equity issue.
The brand association with Ashley Madison is imposing a moral quandary on both bankers and portfolio managers up and down the street. By participating in this issue, do I enrage, or at least create suspicious feelings with my spouse (that I already barely see)? Do I somehow endorse adultery? Does it matter?
If capital is truly amoral, as argued by Compte-Sponville, then Avid Life would be considered great investment opportunity into a solid organization that generates a boatload of high margin EBITDA. Its plan to acquire Moxy Media vastly diversifies its online media portfolio and includes reputable verticals as diverse as home improvement and law. The acquisition would set the stage for a future Canadian media juggernaut when there are not many left for public market investors after the disappearance last year (through acquisition by Disney and Barclays) of Kaboose.
Speaking of Kaboose, here is a bit of irony. Some of the same people who were behind family-friendly Kaboose, are now behind couger-friendly Avid Life. This pedegree is probably what attracted GMP, despite the Ashley Madison brand-association risk. It also helps to make Avid Life an even better investment bet...experienced management is difficult to find.
If the capital markets were truly behaving amoral, and with GMP acting as the syndicate lead, then the Avid Life issue would be a slam-dunk. In reality, the Street appears to be signalling that, in fact, there is some inherent morality in the Toronto capital markets. Bankers and portfolio managers are turning away from this issue at every turn due to the presense of Ashley Madison. If such morality was consistently present then this would be considered admirable. In reality, the markets are consistently amoral, and this showy disdain for Avid Life by some may, at best, be slightly hypocritical, and at worse, prevent investors from benefiting from a potentially good story.
The question that must be asked is how many of these same bankers and investor were neck deep into online gaming stocks when they were hot? What about packaged goods stocks like Atria, that still manage to push tons of tobacco? Are these the same portfolio managers that invest in tar sands companies that contribute to the degradation of the environment? Or that buy mining exploration stocks, whose management teams rub elbows with various tinpot dictators all over the world? In all of these cases, it can be argued that capital is behaving rationally, objectively, and amorally. Why is it any different for Avid Life Media?
Fundamentally, Avid Life Media is no less immoral than any of the examples cited above, and it could be argued that Avid Life is less immoral than some. It depends on perspective.
In the media subsector itself, Avid Life is no less immoral that other much larger players with diversified online portfolios. CollegeHumor.com has been a bastion of ribald humor, scandalous photos, and general poor taste, which has skirted the edges of pornography for nearly a decade. It's owner? None other than IAC/Interactive Corp (IACI:Q) trading at a $2.6 billion market cap. It just happens to be one of over 50 online properties owned by IACI (6 of which are dating sites).
And that is the rub...Avid Life Media is positioning itself to create a diversified online lifestyle portfolio that can compete on the world stage with the likes of IAC/Interactive Corp and Liberty Media among others - who appear not to be penalized by racy properties (only by bad earnings). Avid Life has a strong, experienced management team that already operates a high margin, high growth business, from which it can consolidate. It is a solid media play.
In the end, the amoral nature of capital should prevail, and GMP should be successful in raising capital. There are enough single bankers, and portfolio managers on their third marriages to be non-plussed by the moral quandary now coursing through Bay Street. And, based on the fundamentals, they should make their investors a lot of money on this stock.
Disclosure: I do not own shares of any of the Companies discussed in this post.