Greenfield Online's Acquisition by Microsoft: The Value in Independent Research

Includes: MSFT, SRVY
by: SoundView Technology Group

By Kris Tuttle

Greenfield Online (SRVY) is a long-suffering online survey company that has just been acquired by Microsoft for $486M.   At first we were a bit surprised because in the past it’s been hard to justify high valuations for online survey companies, but in this case Greenfield was valued as much if not more for their online shopping comparison sites than for the traditional online survey business.

As a research company ourselves we watch this space fairly closely, especially in terms of strategy, exits and valuation.  To be sure, high quality survey research is valuable.  There is a perception however that it isn’t that hard to replicate or worth paying that much for.  What’s interesting about Greenfield is that they entered a fairly related field that had a better business model and created a much more favorable exit for the company than they would have ever had as an online survey company, almost no matter how well they executed.

A closer look at the business shows that the comparison shopping business was about 1/3 of revenue but nearly 60% of profits.  At the same time the growth rate of 50% YoY compared to overall flat revenues in the online survey business.  (All this based on company reported numbers from May 2008.) 

The purchase price represents about 3.2-3.5x sales depending on whether one looks at LTM or management projections for the current year ($148M).  The 12x EBITDA number and 48x LTM earnings are fairly generous.

Research continues to evolve and with every year it’s clear that data and primary information is far more valuable than the traditional content of analyst opinions.  At the same time the exit strategy may need to incorporate elements that would appeal to non-traditional buyers like Microsoft in order to generate higher valuations.

It’s a good time to be an independent research company.