In a recent post, ACG National Capital President, Jason Rigoli, wrote about the recent acquisitions of social networking companies in the region. He touched specifically on the acquisition of GovLoop by GovDelivery and the acquisitions of mySBX and INPUT by Deltek, which led to the rebranding of mySBX to govWin.
Jason’s article looked at these smaller acquisitions of industry-specific social media properties as a sign that companies are seeing increasing value in social networks as a way to connect with their customer and industry communities.
On a larger and broader scale, social media valuations continue to soar and are now likely attaining the highest valuation ranges than any other industry segment.
Although acquisition talks fell through in early December 2010, Google’s offer of $5-6 billion for Groupon was seemingly astounding for a company that was only 2-years old. This deal would have been almost double the price of Google’s largest acquisition to date of $3.1 billion for DoubleClick in 2007 However, maybe the price is not so high given that Groupon is already profitable and generating $2 billion in sales. Groupon also maintains a coveted, established network of local businesses and is a clear leader in the emerging social discounting industry.
And then just this week, Goldman Sachs and Digital Sky Technologies (“DST”) took a less than 1% stake in Facebook via a $450 million investment, which valued the social network at $50 billion. DST made an earlier Facebook investment in May 2009, when it paid $200 million for a 1.96% stake. DST is backed by Russian billionaires and also owns stakes in Groupon, Zynga Game Network and Russia’s largest social networks. Facebook’s revenues are also thought to be about $2 billion indicating its valuation multiple is much higher than Groupon’s (i.e., roughly 3x revenue for Groupon and 25x revenue for Facebook).
By making this investment, one would think that Goldman is well-positioned as the investment banker of choice for the social networking giant. Some predict Facebook will go public in 2012 which would generate many millions of dollars in fees for Goldman as lead underwriter and bookrunner. In addition to that potential assignment, Goldman is thought to currently be forming a Facebook investment vehicle to raise an additional $1.5 billion from its wealthy clients.
All this deal activity driving social media valuations should also have a positive effect on the general technology deal market. Technology M&A is expected to increase in 2011 and is off to a good start given some of these recent announcements.
In an interview on Bloomberg, James Woolery does a nice job of connecting the dots between the social media deal activity and technology M&A. In addition, he highlights some of the other factors expected to drive technology deal activity in 2011, such as excess corporate cash, higher valuations leading to motivated sellers, and pent-up private equity demand.