Martin Wolf News

June 7, 2012
The Right Value Matters
Why Facebook's Market Value Is Tanking

 

As anyone who was on planet Earth last month knows, the Facebook IPO resulted in a huge valuation for the company. Since its IPO, Facebook's declining stock price has reminded us that with a high valuation comes a responsibility to meet market expectations.

 

As of the close of market yesterday, June 6, 2012, Facebook's value has declined to $57 billion from more than $100 billion on its first day of trading.

 Facebook

In our world of IT M&A, when a company has been acquired for an "overvalued" price, we always look at whether the company can earn its premium price through sales growth and how long that would take. For example, when SAP acquired SuccessFactors for $3.4 billion in late 2011, it paid a 52% premium based on SuccessFactors' closing price the day before the announcement. Was SAP justified in paying such a high price for the asset?

 

In the case of SAP and SuccessFactors, we said yes. That's because what a company being sold is worth is based more on what a buying company can do with it than what the company has been able to do thus far on its own. And we believe that SAP can mobilize its relationships with enterprise customers and pave the way for SuccessFactors rapid success and revenue growth.

 

Investors clearly are skeptical that Facebook can live up to its current market cap anytime soon. They are asking - rightly so - "We know that Facebook employees and existing investors got rich last month - but what's in it for me as a new investor?"

 

That chapter has yet to be written. But the high premium of the Facebook IPO has put an undue burden on the company management.

 

It is a lesson on why the right valuation is critical in buying or selling a company. And, a premium is worth it at the time of purchase if the purchased asset can meet the valuation expectations.

 

We wrote about this in more detail in a post on GigaOM

 

 

To learn more about martinwolf contact Tim Mueller at tmueller@martinwolf.com.  

About martinwolf    

 

With offices in San Francisco and Bangalore, India, martinwolf is a leading middle market M&A Advisory focused on companies with services-based business models. Since 1997, our team has completed more than 100 transactions in six countries. We are a five-year member of the Merrill Lynch PS Referral Network, and were selected as ICICI Bank's (India's leading private bank) exclusive strategic partner for acquiring U.S. IT companies. martinwolf is a member of FINRA and SIPC. For more information, visit www.martinwolf.com.

   

December 1, 2011

Softchoice Corporation (TSX: SO) announced it has it has fulfilled its regulatory requirements under the Competition Act and has now completed the acquisition of substantially all of the assets of UNIS LUMIN, one of Canada's most highly regarded Cisco networking and managed services companies. Softchoice was represented by martinwolf | M&A Advisors. The acquisition strengthens Softchoice's professional services capabilities while providing the technology foundation to support the Company's future cloud offerings.

Please click here to view the announcement.   

 

September 30, 2011

SPS, a leading Unified Communications Provider, announced that Court Square Partners has made an investment in the company. martinwolf advised SPS in this transaction. SPS is a premier unified communication services integrator, ranked 131 on the 2011 VAR 500 list with 2010 sales of $143 million. Court Square is a $4B+ New York-based PE Group, with more than 150 lifetime investments.  

Please click here to view the announcement. 

      

September 20, 2011  

Accel-KKR, a technology-focused private equity investment firm, announced that it had taken a majority stake in Infinisource. Infinisource is a leading benefits administration technology and services company. martinwolf advised the seller in this transaction.  

Please click here to read more.  

 

 

martinwolf | M&A Advisors 2012    

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