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Comprehending Valuations January 13, 2007

Posted by Vijay in Blogging, Business, Internet, Issues, Trends, Yahoo.

The acquisition spree has started again. Google bought YouTube for over $ 1 Billion. Now Yahoo has acquired a company called MyBlogLog for $10 Million. What makes this sale very interesting is that MyBlogLog is 6 months old and has 5 employees !!

So how does one arrive at these numbers? Don Dodge does his best to arrive at the rationale behind this figure.

So, when will we see the similar acquisitions in India? Soon, never? I remember several ridiculous acquisitions and business deals last time around in 1999-2000. Some examples included Sify acquiring Indiaworld. IndiaInfo.com reaching a ridiculous agreement with VSNL on becoming their landing portal.

Wonder if history will repeat itself?

UPDATE: Heres an interesting link to what is termed as the Worst Billion Dollar Acquisitions .

Must be from the buyers perspective.. the sellers were laughing all the way to the bank



1. Murali Partha - January 14, 2007

Yes Vijay. And how does one explain the craziness with the Hutch valuations? The Private Equities valued it at $12 bn on 8th Dec. Another group said it was $13.5 bn on 10th Dec. Essar said it thought it should be $16 bn on 26 Dec. Hutch itself said it expected a min of $20bn on 27 Dec and sure enough new bidders have emerged at $21 bn now.

What posseses these “experts” to go from $12bn to a $21bn valuation in less than one month is beyond me. It does not seem like there is any science to this. I guess it all depends on how badly a business fits into your strategic future, how badly & quickly you need to add something to your portfolio that determines these things.

2. Aditya - January 14, 2007

Valuation is one of the black arts in the world of business. It depends a great deal on the assumptions around future revenues, costs and cash flows. We had a finance professor who used to tell us that “you can make the numbers tell any story that you want” and “the story you want to tell depends on which side of buy/sell you’re on”. Murali, your anecdote above proves this… If you’re a on the sell-side (Essar), your assumptions / techniques will inflate your valuation. If you’re on the buy-side (PE) your assumptions / techniques will be conservative and the valuation will be significantly lower. And both will have valid reasons for their underlying assumptions and both will be right because there’s no right or wrong. Fascinating game.

3. Vijay - January 15, 2007

Its a little like supply and demand.. who needs it more.. the buyer or the seller.. in some cases it can also be a situation where you are willing to put these extra bucks in just so the competition can’t get the sale (the “dog in the manger valuation”).

Heres an interesting link to what is termed as the Worst Billion Dollar Acquisitions …


Must be from the buyers perspective.. the sellers were laughing all the way to the bank

4. Veena Shivanna - January 16, 2007

Nice post & comments as well..
Vijay, Are you thinking of any ? evaluation process is very important as well.. I went to a small fancy store yesterday to buy some bangles, I hardly spend money to buy some dozens of bangales.. I was just thinking about this one, what really is the take away from such a small shop, why can’t he shake his hand with some big guy & make more money faster. It takes a lot to even think in those lines for them…! The motivation being different may be.

5. Veena Shivanna - January 16, 2007

Its the motive in the last line.. ! Not Motivation 🙂

6. Vijay - January 16, 2007

Veena: More than the motive… is there an opportunity for him to do that?

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