In September 2009, Ebay sold 65% of Skype at an enterprise value of $2.75 billion (17.6x EV / EBITDA. Eighteen months later, Microsoft acquires the company at a valuation of $8.5 billion, over 3 times higher.
Skype closed 2010 with $860 million in revenues, $264 million in adjusted EBITDA and long-term debt of $686 million. The company’s growth rate seems to be slowing; only a company that is desperate to reinvent itself would be willing to pay a 30x EV / EBITDA multiple. Nevertheless that desperate buyer indeed showed up, and I was too pessimistic in my previous post two years ago.
Ebay overall made a little money on the Skype deal: it paid $2.6 billion in September 2005 and another $600 million in earn-out; it sold a 65% stake for about $1.8 billion and is now selling the remaining 35% at about $2.8 billion (I assume an enterprise value of $8.5 billion and an equity value of $8 billion to take into account about $500 million in net debt). It may sound like a good gain, but it’s a 8-9% IRR.
Silver Lake, Andreessen Horowitz, Index Ventures and Canada Pension Plan Investment Board did better, with a great 3.1x exit in 18 months. Skype founders Niklas Zennström and Janus Friis took home another cool billion dollar ($1.19 billion to be precise).
From
Ranking tech companies by revenue per employee - (37signals):
| Rank |
Site |
Employees |
Revenue |
|---|
| 1 |
google |
19,835 |
$23,650,000,000 |
| 2 |
facebook |
1,200 |
$1,100,000,000 |
| 4 |
yahoo |
13,900 |
$6,460,000,000 |
| 11 |
twitter |
175 |
$25,000,000 |
| 21 |
amazon |
24,300 |
$24,510,000,000 |
| 25 |
ebay |
16,400 |
$8,730,000,000 |
| 36 |
craigslist |
30 |
$100,000,000 |
(Revenue figures via Yahoo! Finance except where otherwise linked.)
Ebay sold Skype at a valuation of $2.75 billion. That’s a hefty 17.6x EV/EBITDA multiple on EBITDA 2010E of $156 million. I wonder if investors led by Silver Lake Capital were able to finance part of the deal with acquisition debt, but the offer was reportedly not subject to financing.
Ebay originally bought skype $3.1 billion (including earn-out) and later wrote it down to $1.7 billion. Ebay will keep 35% of Skype on its books at about $1 billion.
See my previous post with a recap of key Skype financials.
Following rumors about an IPO of Skype, here is a round-up on Skype financials:
Revenues 2008: $551 million (+44% on 2007 figures)
EBITDA 2008: $116 million (21% margin)
Revenues 2010E: $740 million
EBITDA 2010E: $156 million (21% margin)
Ebay bought Skype in september 2005 for $2.6 billion. It then paid earn-outs of $600 million (out of a $1.5 billion earn-out pool) to shareholders. Finally, it wrote-off its investment, which is now held at a book value of $1.7 billion (which is probably the value at which it tried to shop it around, with no takers).
A private equity investor would probably value the business at an EV of about $1.2-1.5 billion (enterprise value, or cash-free/debt-free equity value), given the continued growth and market leadership (Skype alone represents 8% of the long-distance market). However, such a valuation would deliver a reasonable return on capital, only if it were possible to finance it with $700-800 million in acquisition debt, which seems hardly possible in the current LBO market. In an all equity deal, an entry multiple EV/EBITDA above 10x seems too high to deliver a return on the investment of 2-2.5x the cash invested in 3-4 years (equivalent to a low-end private equity return of 20-25% IRR).
Sources:
Skype IPO could range from $1.6B to $3.1 billion
Now We Know: Skype Is Profitable
