Mark Gritter (markgritter) wrote,
Mark Gritter
markgritter

Rule of thumb measurements on acquisitions

When a large company buys a small company, it typically doesn't have to disclose details of the acquisition price, even in its quarterly reports. This is because the small company's value is not "material" to the large company's operations. (I don't know where the dividing line is, but for a billion-dollar company it can be quite large.)

So a friend asked if I thought VMware had paid more or less than $100m for Shavlik (in May 2011.)

VMware's quarterly report in July 2011 disclosed $205m spent on acquisitions of four different companies over the past six months. One of these had a specific amount in their previously quarterly filing: $15m for NeoAccel.

The other two companies, SocialCast and SlideRocket (remember when VMware thought they were getting into "end user computing?") were startups with a couple rounds of funding each. It is unlikely that they were "fire sales" at the time--- cash was not hard to get in 2011. Nor were they small enough to be acquihires; VMware really thought they would be part of the product offering. (SocialCast is still active, SlideRocket was later sold off.)

The one number we do have is the size of their series B funding rounds. A series B investor typically wants to control about 30% of the company, so based on that rule of thumb we can give valuations as follows:

SocialCast: $8m series B in March 2010: about $28m
SlideRocket: $5m series B in July 2009: about $17m

These numbers are relevant to the purchase price in that they're a lower bound the investors will accept, but (given the no-fire-sale assumption above) they probably want more than those values. Picking nice round numbers we can estimate acquisition prices:

SocialCast: $40-60m
SlideRocket: $30-40m

SlideRocket might be a little more since they had longer to grow, but a 2x "single" for the VC investors would be acceptable.

That leaves between $100m and $120m as the purchase price for Shavlik.

Now, this estimate might be off: SocialCast or SlideRocket may have been seeing great revenue numbers and growing faster than I give them credit for. But Shavlik had revenue and a long history (founded 1993) so it was probably the largest of the acquisitions, or a lower bound of about $65m.
Tags: finance, geek, startup
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