Exclusive: Tango secondary financing values company at around $1.5 billion

[August 08, 2014] By Alexei Oreskovic and Sarah McBride

SAN FRANCISCO (Reuters) - Tango, the mobile messaging company, is arranging a financing transaction that would value its business at around $1.5 billion, roughly one-third more than the valuation it received just five months ago, according to three people familiar with the situation.

Tango’s transaction would involve early investors and shareholders selling shares to Ukrainian-born billionaire Len Blavatnik, who wishes to increase his stake, and potentially others, according to one of the people. Blavatnik, who owns Warner Music Group, first invested in Tango in 2011, when he led a $42 million funding round that valued the company at $160 million.

Tango co-founder Eric Setton declined to comment on the company's valuation. A spokesman for Blavatnik declined to comment.

The people cautioned there was no deal yet, and it was unclear how many existing investors would want to sell in a secondary transaction. One person familiar with the matter said the investment would likely involve tens of millions of dollars worth of Tango shares.

Last month, Tango announced a secondary offering of $8 million that allowed 200 employees to sell shares. It was unclear whether the new transaction would be an extension of that July secondary offering.

Tango, with more than 200 million registered members, is among the new crop of fast-growing mobile messaging services. The enthusiasm for such services was made clear in February when social network Facebook Inc announced plans to spend $19 billion to acquire WhatsApp.

Weeks later, Tango raised $280 million in a direct investment led by Chinese Internet commerce company Alibaba Group. That financing round valued Tango at $1.1 billion.

Hot technology companies are growing their valuations more quickly as investors clamor for pieces of fast-growing companies that show no signs of holding initial public offerings.

"We’re in a world where when something gets hot everyone wants in. It drives the valuation up and makes it easier for people to get liquidity," said one of the people with knowledge of the situation.

Completing a secondary transaction around a big financing round is becoming standard practice in Silicon Valley. Companies are staying private longer, so employees and other early investors often seek to cash out before an IPO.

Tango has forged closer ties with the entertainment industry as it expands its mobile messaging service into a social network-like feed that lets users play video games, watch video clips and listen to music. The company struck a deal with streaming music service Spotify in 2013 that integrates Spotify’s music catalog into Tango’s service. It introduced special “channels” earlier this year to highlight content from various media partners.

Tango’s media push dovetails with Blavatnik’s interests. Blavatnik paid $3.3 billion to acquire Warner Music Group in 2011, adding to holdings in chemicals, real estate and technology.

Blavatnik had been a director at Warner Music since 2004. He bought Warner’s then CEO Edgar Bronfman Jr's house in 2007 for $50 million, 11 times what Bronfman Jr had paid for it 12 years earlier.

(Reporting by Sarah McBride)

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