Bass, Berry & Sims attorney Chris Lazarini analyzed this putative class action brought against Match Group for alleged violations of the Securities Act of 1933 related to the company’s 2015 initial public offering (IPO). Prior to its IPO, Match Group – the owner of online dating sites – acquired The Princeton Review – a company offering test prep services for standardized exams and admission tests. The plaintiffs claimed the company, its control persons, and the underwriters failed to warn investors about certain events that caused the company stock price to fall. The court granted the company’s motion to dismiss, finding:
- The plaintiffs did not plausibly allege that the Registration Statement contained materially false or misleading statements, because Match Group made no projections about the future performance of a recently acquired business.
- The plaintiffs did not plausibly allege a material omission regarding any known trends or uncertainties expected to impact revenues from continuing operations.
- The plaintiffs did not plead sufficient facts to quantify how the shift in focus of The Princeton Review’s business model and a delayed government contract were significant or material to non-dating revenue or all revenue.
Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.
McCloskey vs. Match Group, Inc., No. 3:16-cv-549 (N.D. Tex., 8/24/18)
Determining whether a complaint states a plausible claim is context specific, and courts should draw on their experience and common sense.
Plaintiffs brought this putative class action alleging violations of Sections 11 and 15 of the Securities Act of 1933 against Match Group, its control persons, and the underwriters who participated in the company’s IPO (collectively “Defendants”). In 2014, Match Group expanded its business beyond online dating sites by acquiring The Princeton Review (“PR”), which offers test prep services for standardized exams and college and graduate school admissions tests. Match Group immediately shifted PR’s business model away from multiyear contracts with institutional clients toward online sales to individual students. Meanwhile, the College Board announced it was redesigning the SAT test. Within months of Match Group’s IPO, management cited the changes to the SAT and a delay in executing a significant institutional tutoring contract with the U.S. Government for its failure to meet revenue estimates for its non-dating site business. After the stock price fell, Plaintiffs alleged the 2015 IPO Registration Statement failed to warn investors of the significant risks posed by these events.
The Court grants Defendants’ motion to dismiss. First, the Court finds Plaintiffs did not plausibly allege that the Registration Statement contained materially false or misleading statements, because Match Group accurately reported PR’s historical results and made no projections about the future performance of that business. Second, the Court finds Plaintiffs did not plausibly allege a material omission regarding any known trends or uncertainties expected to impact revenues from continuing operations. The Court finds Match Group disclosed that substantially all of PR’s revenue came from students registering for online test preparation materials and Plaintiffs failed to quantify the impact of the change in PR’s business model on its future revenues.
The Court also states Plaintiffs did not plead sufficient facts to support a trend, much less a material one, at the time of the IPO relating to the redesigned SAT. The Court similarly finds Plaintiffs did not plead facts to support a trend regarding the delayed government contract, because Plaintiffs did not allege it was an important contract or that the delay was a symptom of broader issues reasonably likely to affect the business over the long term. Third, the Court finds Plaintiffs did not plead sufficient facts to quantify how the shift in focus of PR’s business model and the delayed government contract were significant or material to non-dating revenue or all revenue. Further, the Court finds Match Group disclosed the risk of a price decline from underperformance relative to analyst estimates. Finally, because Plaintiffs failed to allege a primary violation under Section 11, the Court dismisses the control persons claims under Section 15.
Match Group’s stock recovered and was trading at over three times the IPO price at the time of the Opinion.