Tales from the Yahoo 10-K…
Today’s filing has some interesting information about Yahoo!’s acquisitions:
–> The acquisitions of Right Media, BlueLithium and Zimbra totaled $1,083mm (at $526mm including its original $40mm investment, $255mm and $302mm, respectively). This is about 20% less than what was reported by all of the blogs at the time of the announcements.
–> Yahoo! invested $40mm into Right Media in October 2006 for a 20% stake, implying a valuation of $200mm. Yahoo! then acquired the company in July 2007 at a valuation of $526mm. That’s a 2.6x return (ignoring any potential preferred or participating prfd cap structures) on Redpoint Ventures‘ $5mm Series B investment in about nine months. I can only imagine the return on Redpoint’s $7mm Series A investment made way back in 2005. Stepping outside the 10-K for a sec, Redpoint also co-led (with Benchmark) the Series A investment in Zimbra, and participated in follow-on rounds, resulting in about 25% ownership. The acquisition by Yahoo! produced a 10x return on their $9mm total investment. Two monster deals (likely returning well over $150mm total to the fund)…both acquired by the same company…less than four months apart. Not bad.
–> While no specific revenue numbers for the three acquired companies were given, Yahoo! did provide the combined revenue of the Company and the 2007 acquisitions as if the acquisitions had occurred at the beginning of 2006. This data showed that Right Media, BlueLithium and Zimbra combined for $97.28mm in 2006 revenue. So Yahoo! paid 11.1x combined 2006 revenue. However, all three companies are assumed to be in high growth mode, so it would be much more interesting to see what that multiple would be on combined 2008 revenue.
To get there, I’m going to make the, presumably reasonable, assumption that the three companies average 50% year-over-year growth in 2007 and 2008. That gets you to combined 2008 revenue of about $220mm*, and implies a 2008 revenue multiple of 4.9x.
If this is the case, not only were the acquisitions great strategic moves, but financially make a lot of sense as well.
* I did a much deeper analysis based on the combined 2006 and 2007 revenue of Yahoo! and three acquisitions. First, I tried to break out the 2006 revenue numbers. Based on this article in 2006, the BlueLithium CEO expected to break $100mm in 2007 revenues. Assuming he was applying typical entrepreneur growth rates, I’d place actual 2006 revenue around $20mm. Further, based on this article, Zimbra had 2006 revenues south of $20mm…I assumed $15mm. Knowing the combined number was $97mm, I assumed Right Media had 2006 revenue of $62mm. Making some further assumptions on the individual companies growth rates, based on their market and 2006 scale, I estimated Right Media, BlueLithium and Zimbra 2008 revenues of $104mm, $70mm and $53mm, respectively. In the end, this process required quite a few more assumptions (and you are more likely to be off the mark with each additional assumption you use) and ultimately landed me combined 2008 revenue of $226mm and a 4.8x multiple. They’re pretty close, so I just went with the more broad 50% growth assumption.
