FriendFinder Networks Files for IPO

FriendFinder Networks
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I've been sick lately (and still am) so I have some catching up to do on news posting.

On December 23, 2008 FriendFinder Networks filed for a $460 million IPO. My first thought was it is an interesting time to file with the downturn of the economy. Adult FriendFinder is the major revenue generator of the FriendFinder Networks and with the latest posts about dating sites doing better in these market conditions, maybe the recession is not as much a concern. Still, there are less people out there with money to invest.

The other big issue is the proceeds of this will be used for the most part to pay off debt. Most investors tend not to like this type of scenario. I'm not sure where this debt came from. FriendFinder Networks was bought last December (see Story) by Penthouse for $500 million. I assume at this point, the FriendFinder accounting books where in a positive territory. I can't see Penthouse buying them for so much money if FriendFinder had a huge debt. This new debt must of come from Penthouse.

Update - CNet News was able shine some more light on the situation and I also found the registration statement FriendFinder filed with the US Securities and Exchange Commission. With this, we are able to see the detailed financials of the FriendFinder Networks.

First and foremost we discover in the Form S-1 is the reason why FriendFinder Networks is in debt. It has to deal when Penthouse bought the network from Various Inc. It was funded primarily by notes. Penthouse needs cash now to pay off these notes (and therefore Various). There is also an issue with over $60 million of debt, when Various did not collect certain required taxes in European countries. These are the real reasons for the $460 million IPO.

In our next article we will take a closer look at the FriendFinder finances and subscriber numbers.