A Different Diagnosis

Following up on David Beisel's first and second posts on the "Bipolarization of Internet Acquistions in 2005", here are two additional charts I've created based on data presented on the Online Advertising Discussion List ("OADL").

The first chart follows the same categories as Beisel's, for ease of comparison. The most interesting difference between the two charts is whereas Beisel's has four acquisitions in the Under $50M category, and five in the Over $500M, mine has 32 and 9, respectively. Not so much bipolar as it is depressed (so to speak).

When discussing Beisel's original bipolar post, Fred Wilson wrote, "I heard some say this summer that Yahoo! 'was thinking that $25M is about the right price for these web services things'.  That is not a direct quote, but directionally correct." For curiosity's sake, I created a new chart with slightly different Acquisition Price categories, one of which was $20M - $29M. The real "death valley" of Acquisition Prices seems to be in the $50M - $99M range, at least with regard to the broader population of companies covered in the OADL.

For statisticians, the OADL data has the following characteristics:

• 25th Percentile Acquisition Price: $17.2M
• 50th Percentile Acquisition Price, or Median: $40M
• 75th Percentile Acquisition Price: $200M
• Mean: $241.9M
• Standard Deviation (Population): $493.6M

Comments

[Cliff Kurtzman]

One thing I've been thinking about is how the substantial number of "undisclosed" deals differ in scale from the disclosed deals.

What determines if a deal is disclosed or not?

1. If the company being acquired is public, the deal terms are always disclosed.

2. If both companies are private, the deal terms are usually not disclosed.

3. If the acquirer is public, but the company being acquired is private, then there doesn't seem to be any hard and fast rule. But I suspect that public companies will make a decision as to whether or not to disclose the sale price based on how "material" they deem that information would be to an investor. Knowing the amount that a large company paid in a smaller acquisition (e.g., Google acquiring Dodgeball) would not be terribly material to someone considering an investment in the larger company. But knowing what eBay paid (and might pay in the future) for Skype is surely a material factor in evaluating eBay's stock. I would not find it surprising for a larger company to adopt a mindset that an acquisition over $100M was surely material, whereas one under $100M was not necessarily so.

Factors 1 and 3 would both seem to make it more likely that larger deals will be disclosed. Large deals will only remain undisclosed when both parties are private, and that probably doesn't happen very often.

With this in mind, in looking at your charts, I'd venture that the trough from $250M-$499 is real. The dip in the $20M-$29M range appears to be an artifact of the ranges you selected -- the next category ($30M-$49M) had twice the number of deals in twice the dollar range, so the announced deal rate really remained constant over that interval. The drop in the $50M-$99M is interesting, and possibly significant, although it is also possibly an artifact that might go away to some extent if the undisclosed deals were known. In both sets of charts, a case could be made that the ranges selected for charting are not either linearly or logarithmically consistent enough to display the data "fairly."