The Bubble for Social Networking M&A Has Popped

by Thomas Rasmussen

In a sign of just how far the social networking market has fallen, brightsolid’s $42m purchase earlier this month of Friends Reunited from ITV Plc stands as the largest deal in the sector so far in 2009. The price is a mere 5% of the value of the largest social networking acquisition in 2008, which was AOL’s (TWX) $850m all-cash pickup of Bebo. (We would also add that the sale of Friends Reunited netted ITV just one-fifth the amount it originally paid for the property in 2005.) On top of the notably smaller transactions, deal flow so far this year has been characterized by relatively paltry valuations. Friends Reunited garnered just 1.6 times trailing sales, compared to the estimated 42 times trailing revenue that Bebo got from AOL. Add all that together and it’s pretty clear that the bubble of social networking M&A has popped. In the space so far this year, we tally just 28 deals worth a total of $55.5m, compared to 53 transactions valued at more than $1.3bn in 2008.

As an aside, we would note that the acquisitions of Friends Reunited and Bebo have more in common than just ranking as the largest deals of their respective calendar years. The stalking horse bidder for Friends Reunited, Peter Dubens through his investment vehicle Oakley Capital Private Equity, has a close business relationship with Bebo founder Michael Birch. Dubens and Birch formed PROfounders Capital earlier this year under Dubens’ Oakley Capital umbrella. Oakley Capital reportedly offered to buy Friends Reunited for $25m, but declined to bump up its bid above even one times sales. Without reading too much into that, we might be tempted to conclude that except for Facebook, the little value that remains in most social networks is likely to only decline.

Comments

[TCK]

Perhaps I am too old to understand the buzz regarding social networking ?

I did sign up for Twitter to give it a try. But within 5 minutes I managed to receive 3 junk emails.

Personally, I think social networking will fail along with our country's experiment in socialism.

2009 Aug 28 08:36 AM

[gusone]

"we might be tempted to conclude that except for Facebook, the little value that remains in most social networks is likely to only decline."

You totally missed the point. It demonstrates Facebook is heinously overvalued and reality will bite it eventually. Why do you think that spotty tennager sold stakes to Microsoft and the Russian Mafia. He wants the cash in the bank for when it goes implodes. They'll never make the big bucks Facebook worshipping fanboys all eulogise over. The problem for the spotty teenager is he has done a deal with the devil and the Russians will come looking for him to get their money back when it all goes wrong.

2009 Aug 28 09:32 AM

[WalterJR]

(1) TCK, way to go, working your political views into a discussion about social networking sites. You get five extra Rush Limbaugh points!

(2) Most of the social networking stuff is hype. Aside from giving shy, awkward teenagers a way to "socialize," what do they provide?

(3) If someone has something important to tell me, they can call. If it isn't critical, it can wait and they can e-mail me or post it to a blog (in the case of media reports).

(5) Twitter is idiotic. Unless someone is sending updates from the first walk on the moon or updates from a blacked-out sports spectacle the magnitude of Ali-Frazier, I can live without the news for a few hours. Come on: "I just ate a ham sandwich." Five minutes later: "Isn't the opposing political party stupid!" Five minutes later: "I just got a tweet about Senator John Doe and he said something that made me mad."

(6) If I want constant inane distraction, I'll grab the mobile from over the baby's crib and veg out.

2009 Aug 29 12:00 PM