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Kind Of A Big Deal: The Go-Shop That Went Somewhere
September, 12 2008

ZM Capital: a small investment subsidiary of ZelnickMedia that somehow managed to convince a $249 billion company with 91,000 employees to do its bidding.

Three weeks ago, most everyone assumed that Quadrangle Group's agreement to buy media services company Greenfield Online was a done deal. It had a standard go-shop provision, but conventional wisdom tells us those rarely go anywhere. And besides, Greenfield's stock was trading at a relatively small spread. Business as usual. Ho-hum. Then, seemingly out of nowhere, Microsoft upended the whole thing with a superior offer that Quadrangle was unable to match.

Who knew little ZM Capital was behind the scenes, plotting a rival bid, for almost a year?

The entire saga started in October of last year, when ZM Capital approached Microsoft to explore a potential joint bid. ZM Capital wanted Greenfield's Internet survey solutions business, and the firm convinced Microsoft it could benefit from owning Greenfield's comparison shopping solutions business. In January, the parties approached Greenfield and began preliminary talks. By March, Greenfield admitted it'd been seeing other suitors. Including the Microsoft-ZM Capital team, the firm received four formal IOIs.

But Greenfield wanted a simple transaction, with only one buyer, so Microsoft took the lead, agreeing to sell ZM Capital the surveys business in the aftermath.

After repeated indications of interest and two weeks of due diligence, Microsoft had not been given a chance to make a bid. Without warning, Greenfield announced its agreement to sell to Quadrangle for $15.50 on June 16.

On August 4, the final day of the deal's 50-day go-shop, Microsoft topped Quadrangle's bid by $2. The financing contained no contingencies, since it would consist of a "back-end merger of a subsidiary of Microsoft's into Greenfield," according to an SEC filing.

After a few weeks of discussions, Microsoft put the pressure on Quadrangle, giving the firm two days to match its offer. Whether they matched or not is unclear, but the Greenfield board picked Microsoft, costing itself $5 million in termination fees to Quadrangle.

So, everything worked out as planned, and Microsoft didn't reneg on their promise to sell the survey business to ZM Capital, as that deal was announced today. I don't know the value of the deal yet, but will update when I do.

What I can say about size is that Microsoft bought Greenfield for $486 million. According to the company's latest 10-K, the Internet survey solutions business had around $10.1 million in EBITDA for the first half of the year, and Microsoft's piece, the comparison shopping business, had around $11.5 million. Gross revenues were around $49 million and 22 million, respectively. (If I'm reading these filings right, hello margins…)

Unlike Microsoft's deal, the ZM Capital buyout has financing contingencies. The senior debt is coming from NewStar Financial and CIT, and VSS Structured Capital is providing the mezz.

And there you have it, the most detailed auction story I've ever told. Hope I got it right… Thanks, SEC.