5 Seemingly Overpriced Acquisitions That Actually Worked Out
You know how it goes. A rich person or a rich company acquires something it covets. Observers question the price tag.
It happened twice in recent weeks. You can find superb critques of Apple's $3.2-billion acquisition of Beats By Dre. You can also find well-argued skepticism about the $2-billion price tag Steve Ballmer paid to buy the Los Angeles Clippers basketball team.
The whole challenge of acquisitions, of course, lies in speculating over price tags. Valuations, in and of themselves, are often tenuous and short-lived. That typed, let's admit: Every so often, a deal whose price tag was initially questioned turns out to be a great move for the acquirer. Here's a short list:
1. EBay buys PayPal for $1.5 billion in 2002. At the time, some analysts argued eBay overpaid. But "it turned out to be one of the best tech deals of all time," writes Verne Kopytoff in Fortune. "If there's any doubt about PayPal's success consider this: It's growing so fast that it will likely surpass eBay's marketplace in revenue within the next couple of years."
2. Facebook buys Instragram for $1 billion in 2012. Wikipedia cofounder Jimmy Wales questioned the price tag in the Wall Street Journal. So did some of our own writers. But judged on a cost-per-user basis, the deal made sense then. Eighteen months later, there were arguments that Facebook should've paid more.
3. Yahoo buys Flickr for $35 million in 2005. Though it's been written Yahoo has "botched" acquisitions left and right, if you judge the Flickr deal just by its price tag, it was a smart move, notes Adam Ostrow on Mashable. Flickr is now more than 10 years old, and its users upload more than a million photos a day. The pioneering photo-sharing entity is a key piece of Marissa Mayer's mobile-friendly strategy.
4. Jerry Jones buys the Dallas Cowboys football team for $140 million in 1989. Today, Jones' stake in the team is worth $1.83 billion, according to Forbes. Clearly, his decision to buy into the NFL 25 years ago was a smart one. But at the time, it was considered a risk, notes ESPN.com in an oral history of the transaction. The team was losing $1 million a month under its former owner. Laugh, if you will, at the Cowboys' recent history in big games, but this much is true: Their owner has nailed the business side of the equation.
5. Google buys YouTube for $1.6 billion in 2006. Hard as it might be to believe today, this deal had plenty of skeptics. AdAge asked, "Did Google flush $1.6 Billion Down the YouTube?" Nearly two years after the sale, Business Week still questioned the price. Today? "YouTube never stopped growing and is probably Google's best 'social' asset," notes Pascal-Emmanuel Gobry on Business Insider. "Many eyebrows were raised when Google bought barely-year-old, no-revenue startup YouTube for a staggering $1.6 billion. Now YouTube is the clear leader in online video by far and is worth many times that amount."