Groupon Inc. (GRPN)’s choice of Eric Lefkofsky as permanent chief executive officer entrusts the daily deals site’s turnaround plans to a controversial Chicago billionaire with a history of failed endeavors.
Lefkofsky -- one constant at a company that has cycled through executives and dabbled in new business models to make up for waning demand in its main coupon business -- has shored up control after jostling with his co-founder Andrew Mason, whom he helped oust from the CEO role in February.
While the move puts Groupon in the hands of a known quantity, who as interim co-CEO helped oversee a 79 percent stock rally this year, it also dashed optimism that the board would tap an outsider with experience leading corporate overhauls. In May, the company said the search for a new chief was under way and it was talking with recruiting firms.
Yesterday, newly appointed Chairman Ted Leonsis said that in the end Groupon looked no further than Lefkofsky, who provides continuity as the company reshapes itself.
“We have too much to do to take a transition right now,” Leonsis said in an e-mailed statement. “The next few years are critical, and we’re confident that Eric is the right leader for this stage of Groupon’s evolution.”
Lefkofsky, 43, owns 17 percent of the company’s common stock and controls 26 percent of shareholder votes, and his influence over the board may have hindered Groupon’s ability to attract qualified candidates, said Adam Charlson, executive vice president of recruiting firm DHR International Inc.
“That degree of ownership that Lefkofsky has, coupled with his serving in an operating capacity, probably made it next to impossible to get an outside CEO to take a look at actually joining,” Charlson said in an interview.
Leonsis was approached by numerous qualified candidates who were interested in taking the job, said Paul Taaffe, a spokesman for Groupon.
Lefkofsky takes over the deals business as it works to stay relevant in the age of smartphones and tablet computers. Started in 2008 as a service for distributing discounts to spas, restaurants, and other local services via once-a-day e-mails, the company now focuses on offering thousands of deals at once, available any time on the Web or mobile applications, Lefkofsky said yesterday in an interview.
“Our primary vision is to build out a marketplace which people can come to when they have a need,” he said. “We’re fortunate that Groupon is inherently mobile by nature. We’re very focused on that. We’re also focused on this fundamental shift in consumer behavior.”
Groupon’s shares rose as much as 19 percent in extended trading yesterday, following the announcement of Lefkofsky as CEO together with the report of a 7.1 percent rise in second-quarter sales and a smaller-than-projected net loss. The stock advanced 27 percent to $11.04 at 10:03 a.m. in New York.
“They certainly picked someone who’s been there since day one,” Tom Forte, an analyst at Telsey Advisory Group in New York, said in an interview. “He’s extremely familiar with the business.”
Lefkofsky’s stake in Groupon is worth more than $951 million, according to data compiled by Bloomberg. He also owns shares of Echo Global Logistics Inc. (ECHO) and InnerWorkings Inc., two other Chicago companies he co-founded, worth $97.6 million.
Lefkofsky got the daily deal provider off the ground with a $1 million investment in The Point, the predecessor to Groupon, and in 2008 prodded Mason into focusing on the e-commerce startup.
In 2011, Lefkofsky caused a stir and attracted the attention of the U.S. Securities and Exchange Commission when he told Bloomberg News just after Groupon filed its prospectus for an initial public offering that he expected the company to be “wildly profitable.” Groupon later updated its IPO filing, telling investors to disregard the comments.
Lefkofsky’s investment in Groupon followed a series of past ventures, some of which stumbled. In the 1990s, Lefkofsky and his business partner, Brad Keywell, bought children’s clothing company Brandon Apparel Group. It later faltered after taking on too much debt and a shift in fashion trends, Lefkofsky explained on his blog.
Lefkofsky also co-founded Starbelly.com, an online promotional-merchandise seller, in 1999 and then sold it to Ha-Lo Industries Inc. for $240 million. Ha-Lo filed for bankruptcy protection from creditors in July 2001 after writing down the acquisition.
In 2001, he founded printing-service provider InnerWorkings Inc. (INWK), which went public in 2006. He also helped found Echo Global Logistics Inc., a shipping-technology company, in 2005. That company held its IPO in 2009.
Groupon’s second-quarter earnings report gave a glimpse of the early progress in Lefkofky’s efforts to jump-start growth by targeting smartphone and tablet users. Almost 50 percent of North American transactions in June came from mobile devices, up from about a third a year earlier, the company said in a statement. More than 50 million people have downloaded Groupon’s apps globally.
Third-quarter revenue is forecast to rise to $585 million to $635 million, Groupon said. That compares with an average analyst estimate of $621.5 million, according to data compiled by Bloomberg.
On top of keeping the company growing in mobile, Lefkofsky faces the challenge of wooing users outside the U.S. Even after Groupon invested heavily in an overseas expansion, international sales declined in the second quarter, with revenue dropping 24 percent in Europe, Middle East and Africa, and falling 26 percent in other international markets.
“There’s a handful of countries we need to turn to and focus on,” Lefkofsky said in the interview. “It’s a matter of focusing on those markets that are underperforming.”
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