Google’s Groupon Offer: $5.3 Billion, With $700 Million Earnout
According to sources close to the situation, Google has offered $5.3 billion for Groupon, in what would be its largest acquisition yet, if completed.
Sources said the deal for the Chicago-based social buying site seems likely to be struck, even as early as tomorrow, although it certainly could fall apart right up to the end.
But, if done, it will move the search giant instantly to the top spot in local commerce online and give it huge troves of data about consumer buying habits and merchant information across the globe.
Combined with its pending $700 million acquisition of ITA Software, the travel data firm, that should freak out regulators worldwide and could be considered Google’s own version of a jobs plan for antitrust lawyers.
That said, it is a killer move for Google–despite the high price–given it has long tried to enter the local advertising space, with decidedly mixed results.
With its more than $33 billion in cash and strong stock, it had previously tried to buy local reviews site Yelp, in a deal that fell apart for reasons that are still unclear.
In contrast, Groupon, founded in 2008, has taken off like a Roman candle and dominates the huge market for social shopping and discounting.
While the $6 billion Google is considering paying seems high, Groupon’s fast-growing revenue and profitability make its multiples less daunting, said those familiar with the matter.
It will certainly be a big payoff for Groupon’s investors, including Silicon Valley’s Accel Partners, as well as Battery Ventures, New Enterprise Associates and Russia’s DST Global.
Groupon has gleaned about $170 million in venture funding from them, most of which it has not needed.
That’s because it has reportedly attracted upward of $50 million in monthly revenue.
It has done this by offering “daily deals”–getting a massive discount from local retailers in return for delivering customers via marketing via email and on social networks, especially Facebook and Twitter.
Typically, local merchants rely on less effective newspaper circulars or paper couponing.
In what will certainly be one of the deal’s ironies, Google could own a start-up that is largely powered by rival Facebook’s massive skein of social networking connections.
Facebook, of course, recently introduced its own Facebook Deals offering.
BoomTown first wrote about the deal discussions between Groupon and Google two weeks ago, noting the price would be well above the $2 billion to $3 billion offered by Yahoo.
That interest from Yahoo, which was first to sniff around the fast-growing social buying site, was first reported here too–mostly because I apparently like to stalk Groupon CEO and Justin Bieber lookalike Andrew Mason.
(And I will personally be fascinated to see how he’ll mesh with Marissa Mayer, the former search experience head who is now leading local for Google.)
The New York Times–which does not ever seem able to give credit, as All Things Digital and other blogs always do happily and without fuss–is also reporting a $6 billion price tag for Groupon.
While we all await the outcome of this potential blockbuster of a deal, here is a video interview I did with Mason this summer in Vancouver, where I asked him specifically about Google’s interest (actually, I suggested he mug Google co-founder Larry Page for dough).
Note the Bieber haircut:
Please see this disclosure related to me and Google.
Comments
Horribly high offer for a company who can’t even stay operational during a traffic spike. 10x reported run rate, likely 20x once the books are reviewed. Google dropped the market cap’s worth of the Vator.tv reported deal on Monday, so it’ll be interesting to see how much farther it falls on Tuesday.
Posted by Anonymous at November 30th, 2010 at 7:13 amHorribly high offer for a site that crashes on a high traffic load. 10x its reported run rate, likely 20x the actual rate once the books are opened. GOOG dropped the market cap’s worth of the Vator reported deal value on Monday. Tuesday will be interesting.
Posted by Anonymous at November 30th, 2010 at 7:16 amWe broke the story and had these high numbers weeks ago, so this should not be a shock.
Posted by Kara Swisher at November 30th, 2010 at 7:24 amYou said it was likely, but Vator said it was done. Accurate or not, $2.5 was the number out all day today. Regardless, $5 mil/employee is insane.
Posted by Anonymous at November 30th, 2010 at 7:29 amWhat is he going to do with all that money? Build a space ship?
Posted by Charbax at November 30th, 2010 at 9:33 amNot a bad return for the guys who set-up Groupon. Sounds a great deal for them, but a huge amount of money for Google to pay for it.
Posted by Gary Chesterton at November 30th, 2010 at 11:12 amis google’s buying spree similar to yahoo’s buying spree in the 90s?
Posted by Ben Cervantes at November 30th, 2010 at 12:18 pmWith the barrier to entry being $0, I wonder if these deals will look good in 10 years.
Posted by Wall_St_Cheat_Sheet at November 30th, 2010 at 2:01 pmWhat comes to mind is “Where will Google stop?”. Google is well on its way to becoming the one-stop brand of all time.
Posted by Anonymous at November 30th, 2010 at 2:39 pmThat seems largely overvalued. Groupon relies on Google’s rival, Facebook for the majority of its income. Sounds like they’re making a deal with the devil. At $50 million per month that’s 106 months of revenue to break even at 5.3 B. What a crappy investment. That’s even if Google can still get it to make that per month and the site doesn’t tank after everyone finds out Google owns it.
Posted by Steven Leggett at November 30th, 2010 at 2:50 pmMust be nice to have train loads of cash lying around.
http://www.real-privacy.edu.tc
Posted by Anonymous at November 30th, 2010 at 3:05 pmLooks like it was a pretty big shock, as GOOG is down almost $5B in market cap. Investors realize this is a bad deal.
Posted by Anonymous at November 30th, 2010 at 3:22 pmInteresting move, will this fall under Marissa Mayer’s new team @Google
Posted by Mohan R at November 30th, 2010 at 3:43 pmCongrats on breaking the story. Now stop stalking! :-)
Posted by paramendra at November 30th, 2010 at 5:44 pmYes, if their revenues stayed constant, which they are not. Groupon is opening new cities each and every week. Their ability to multiply revenue is astounding… and that’s what the VCs in Silicon Valley are saying. $5.3B in just a few years will look like a very shrewd investment.
Posted by Anonymous at November 30th, 2010 at 5:47 pmI don’t get this. Where does groupon intersect with google?
Posted by Anonymous at November 30th, 2010 at 5:50 pmDid you not read the article in Forbes stating that Groupon is the fastest growing company…EVER?! That’s a big statement.
Posted by Matt at November 30th, 2010 at 6:18 pmBut how sustainable is their (revenue) growth?
Posted by Anonymous at November 30th, 2010 at 8:28 pmBut how sustainable is their (revenue) growth?
Posted by Anonymous at November 30th, 2010 at 8:31 pmWhy this is a bad deal:
Posted by Joe at November 30th, 2010 at 9:24 pm- Many advertisers don’t find Groupon profitable for them
- Many customers don’t like it because of the hassels of redeeming the coupons.
- Market is becoming saturated (there must be a half dozen of these in every city now)
- If facebook shuts them down like they shut down lamebook the business will evaporate
- Google has enough local advertising reps in every city
- There is no technology being acquired (Google could rebuild this overnight)
- Not an automated business at all
- No synergy with existing Google products
- Paying 10x yearly revenue
Groupon is feeling the heat now that 42% of business have stated they won’t use it again (see Rice University study). They are smart to sell before the business base cuts back the 50% split to Groupon. That split won’t last as businesses have choices now, like Living Social and a dozen more.
Posted by Anonymous at November 30th, 2010 at 10:29 pmGreat story. One thing it’s worth pointing out though is that while Groupon was founded in 2008, they’ve been working on this tech as ThePoint since 2006.
Its not quite as catchy a narrative as “dude has wacky idea and sells it two years later for $6B”, but it’s certainly more interesting: “Dude has wacky idea and finds after several years he can’t make it work in the nonprofit space, so he tries it in the commercial space and makes a mint.”
Posted by Anonymous at November 30th, 2010 at 10:41 pmIf true..the valuation seems just amazing..
Cheers,
Venugopal
Posted by Anonymous at November 30th, 2010 at 11:47 pmVengo Ventures
hey smartypants, break-even should be on profit, not on revenue.
Posted by Anonymous at December 1st, 2010 at 4:39 amLike your analysis, esp about the payoff and fb kiddish management. However, don’t agree with ‘overnight’ – dont forget there are 20M customers, not sure how long it would take Google to get that many. Also, not all acquisitions are done just to acquire – it is also a nice way of killing the competition.
Posted by Anonymous at December 1st, 2010 at 4:43 amNo one can understand the google mind that where they can invest this money.
Posted by Business Logo Design at December 1st, 2010 at 6:43 amI have the Groupon iPhone app, downloaded it weeks ago to see what it was about, and I have never used it. Surprised Google paid billions for it. I guess I’m not the coupon type of person.
Posted by Tony Martin at December 1st, 2010 at 7:05 am