Needs Supervision – WSJ

CRCM 7.71%

’s days as an independent matchmaker could be limited.

New York-based activist investor Engine Capital L.P. is calling for the company to explore a sale in the wake of The Wall Street Journal’s March investigation which showed it provided limited vetting of its caregivers, sometimes with tragic results. In subsequent months, both’s chief financial officer and chief executive have said they will resign.

Down more than 52% in the year to date,’s shares rose more than 8% Thursday morning—which would be their largest single-day gain this year.

Engine’s letter cites an erosion of trust in the brand, evidenced by a sequential slowdown in paying families in’s U.S. consumer business in the second quarter.

Engine isn’t alone in suggesting extreme measures. In a conference call for investors earlier this month, one analyst asked about rebranding or separating’s growing Care@Work platform, which provides employer-sponsored care. In response, founder

Sheila Lirio Marcelo

expressed continued faith in the business, stating management felt the brand to be “quite strong.”

That confidence is questionable. According to Engine’s letter, lead independent director

George Bell

’s purchase of stock last week represents the only instance of an insider purchasing shares since August 2014. It also notes another director sold out her entire position over the past few months, though she has since received shares of restricted stock. has no controlling owner, which could lessen insider resistance to a potential sale. According to its most recent proxy filing, the company’s largest shareholder, CapitalG LP, owns 13.8%, while Ms. Marcelo owns 8.3%. The Journal reported Engine has accumulated more than 3% of the company’s shares, citing a person familiar with the matter.

The activist suggests an optimal buyer would be a company with an established online marketplace business. As an example, it names


a holding company that notably owns Match Group and

ANGI Homeservices

—two companies that similarly match service providers with users.

The question is whether any company can restore lost trust when it comes to child care. Taking a page from Jane Austen, parents’ good opinion once lost may be lost forever.

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