Infidelity website Ashley Madison faces 'doomsday scenario' after hack -bankers

By Alastair Sharp and Euan Rocha
TORONTO, July 21 (Reuters) - Infidelity website
AshleyMadison.com, which has been struggling to launch a London
IPO, can kiss goodbye plans for a listing this year, banking
sources said on Tuesday, as hackers threatened to publish names
and salacious details about its clients unless the website shuts
itself down.
The website's Canadian parent hoped to raise up to $200
million by listing its shares in London this year, five years
after a lack of investor appetite caused it to cancel an attempt
to list at home. ID:nL4N0XC534
Hackers threatened to leak nude photos, sexual fantasies,
real names and credit card information for as many as 37 million
customers worldwide of Ashley Madison, which uses the slogan:
"Life is short. Have an affair." ID:nL3N1003IE
The data breach, bad for any company that has a repository
of confidential customer data, could be disastrous for one whose
business model is based on complete confidentially.
"The doomsday scenario for Ashley Madison is if the hackers
take all the names and addresses, correlates them to real people
and prints addresses and phone numbers. That will kill it," said
a Canadian investment banker, who asked not to be named.
With more than 37 million members worldwide, Ashley Madison
claims to be the world's second-largest dating website.
Only Match.com, owned by media mogul Barry Diller's
IAC/InterActive Corp IACI.O , is bigger.
Avid Life Media, the parent company of Ashley Madison and
websites such as Cougarlife.com and EstablishedMen.com, values
itself at $1 billion. It reported revenue of $115 million in
2014, up 45 percent from the preceding year.
"Of course they're going to have to put any IPO plans on
ice. It will be at least a few months before any banks would
consider touching it," said a second Canadian investment banker.
"I don't think this kills the company, unless all the data
eventually gets leaked."
Long before it explored a listing in Europe, Avid Life had
reached out to Toronto's GMP Securities about a listing in
Canada, but the idea failed to gain traction, two banking
sources said.
"The thought was that there was reputational risk, so the
IPO never happened," said one of the bankers who declined to be
identified because he was not authorized to speak to media.
The banker said that because of those concerns the valuation
was less than other businesses on the Internet and in the tech
industry.
"Over the years, they tried to do a lot of things to try to
monetize the asset," the banker said. "Ultimately, they decided
to just hang on to it, as opposed to try to sell it. Investment
bankers wrestled with it because it's a very, very profitable
business."
Avid Life spokesman Paul Keable said it was too early to
estimate the damage to the company's business model or IPO plans
from the breach. The company has not commented on whether it
would shut down in the face of the hackers' threat.
The website allows members to access some basic features for
free, but charges to send or receive messages, photographs and
gifts. Female members are allowed to send "collect messages"
that male members must pay for in order to read them.
It also offers a $19 full delete option for people to remove
their profiles. That claim appeared to have incensed the hackers
who insisted that clients cannot fully delete personal data.
The site allows members to sign up without disclosing
personal information such as their name, telephone number or
home address. However, the hackers allege that information is
available from credit card payments.
Avid Life said it had since secured the site and was
working with law enforcement agencies to trace those behind the
attack. It also said it is convinced the hackers were formerly
connected to the company.
Crisis communications experts said Avid Life had made a
smart move in quickly saying it may know who was behind the
hack, removing some uncertainty from the situation for its
clients.
Still, Wells Fargo analyst Gray Powell said in a note
Tuesday that the hack will create remediation costs and may
expose Avid Life to potential legal issues.
"While this is clearly a unique case, the Ashley Madison
breach demonstrates that security is about more than just budget
dollars and that lost customer data can dramatically impact
business plans, brand perception and even company valuations,"
he said.