It's a little bit terrifying how close Ashley Madison came to an IPO
The details of more than 30 million people who were registered to the site, which is meant to facilitate extramarital affairs, were released after a data breach in July.
That's obviously terrible, but part of what's unbelievable when you sift through the wreckage of this disaster is how close the site was to breaking into the mainstream, at least as a major online company.
That's amazing and scary - not from a moral point of view, but from a business one.
As recently as four months ago, Ashley Madison's CEO was talking up the prospect of listing the company on a stock exchange - pretty much the pinnacle of mainstream business success.
That now looks like a laughable ambition. Since the leak, huge holes in the business have become apparent. The confidentiality of its (understandably secretive) users has been breached by the hack. But part of the reason some have been compromised is because even the "full delete" option offered by the site seems to have been enough to easily identify users - they were sold a pup.
What's more - and perhaps even worse from a business perspective - it looks like it was almost entirely men using the service. With 31 million male and 5 million female accounts, the odds were already stacked against men looking to cheat, but research by Annalee Newitz of Gizmodo suggests only 1,492 of those female accounts had ever opened their message inboxes.
These are astonishing revelations for a company that was seriously considering listing on the London Stock Exchange, and announced its intentions to just four months ago. It had tried to do the same in Canada in 2010 and failed because its backers dropped out, citing sudden moral concern.
CEO Noel Biderman tried to distance the company from this flop, telling Bloomberg in May the site is a much larger business today.
He said: "You're talking about a fledgling business in two countries then versus 46 countries now, doing a couple million dollars versus doing a hundred million dollars." The company and its parent, Avid Life Media, have grown at an astonishing pace.
Still, lots of articles cropped up in April, with many reputable investors turning their noses up at the idea of buying shares in a company that facilitated adultery. Sam Smith, CEO of Finncap, told the Times "when you bring businesses to the market, you need to believe in them and get behind them," adding that Finncap would "struggle" to do that in Ashley Madison's case.
But the company already has investors, they just didn't buy their shares on a stock market. Back in late 2013, Newsweek named tentative or wannabe investors in Ashley Madison's parent company:
Fortress Investments, the New York-based hedge fund with nearly $54 billion in assets, recently signaled its preliminary intent to loan Ashley Madison's privately held parent, Avid Life Media - $50 million over two years, according to persons briefed on the matter. (Biderman and Fortress declined to discuss this.) And last June, a partner from the New York investment bank Jefferies met Biderman for drinks at the Four Seasons Hotel in Manhattan to talk about a possible initial public offering for the Toronto-based company. Just this month, Grupo BTG Pactual SA, Brazil's largest independent investment bank, called Biderman to ask about taking an equity stake in Ashley Madison and licensing the Ashley Madison brand.
Nearly a third of Avid Life media is owned by the DeZwirek family and their company, Icarus Investment Corp, according to Reuters. The company clearly found it difficult to find investors, but it didn't find it impossible.
Of course, many investors wouldn't want to own shares in Ashley Madison for ethical reasons - and they're more likely to talk about it (it's free press for Finncap after all).
But markets are largely amoral (if not immoral), and I find it really difficult to imagine that if people saw value in the company, it wouldn't have found buyers. Perhaps that's me being cynical, but I think imagining it would have been rejected by a widespread moral consensus is a bit naive.
That's roughly what Matt Lynn argued when he wrote the now rather unfortunately-titled "London should embrace adultery site Ashley Madison" for MarketWatch back in April.
A study by Harrison Hong and Marcin Kacperczyk in The Journal of Financial Economics called "The Price of Sin" found that "sin" stocks outperformed the wider market by 2.5% a year between 1985 and 2006 (and even better just in the U.S.). That is the kind of margin on which hedge fund fortunes are built. It might just be a statistical anomaly of course. More plausible, it might be because, rightly or wrongly, this is what actually sells. The more of them that London has - and if Ashley Madison doesn't count as sin it is hard to know what does - then the better the market will perform.
He also, somewhat worryingly, and perhaps rightly, said that "far-flimsier businesses have been floated in London." That might be the main message here - how quickly things can go down the toilet.
Ashley Madison isn't being brought down because of its dubious moral worth, but because it had shoddy data security and seems to have had shoddy business practices too. Those things are crucial and they don't always show up on a balance sheet.
It's scary when you realise that even before the hack, the Wall Street Journal was pointing out how risky a hack would be on a business that was so reliant on confidentiality. The fact that an employee had sued the site and alleged that she was employed to create thousands of fake profiles was public knowledge.
The truth is that if Ashley Madison already had investors and massive revenue growth, it would have found more if it had floated. There will always be someone who refuses to let money go lying at the side of the road, no matter who it comes from.