I think timing plays a big role in the value of a business.
Let’s look at two examples — one in which the seller benefited from good timing, and the other in which the seller was penalized by it.
Playdom, the No. 3 player in the business of developing games for social media platforms such as Facebook, was recently purchased by Disney for $563.2-million. Playdom generated roughly $50-million in revenue last year, meaning Disney paid 10 times revenue for Playdom.
Why would Disney pay such an incredible multiple for Playdom when it is the No. 3 player in the social-media gaming world and just one-tenth the size of the market leader?
It seems the shareholders of Playdom benefited from some good timing because the No. 1 player, Zynga Game Network, recently closed a round of financing valuing the company at around $5-billion, a 10-times multiple of Zynga’s $500-million in expected 2010 revenue. Zynga has re-priced upward the value of the entire social-media gaming company category, and its peer group benefits.
Zynga is widely considered one of the hottest start-ups in Silicon Valley and it is expected to follow in the footsteps of the likes of Twitter, Facebook and Google. It appears Disney wanted an invitation to the party.
Time, it is said, stops for nobody — not even giant oil companies such as BP, which needs to raise money quickly to clean up its mess. So you can bet that when Apache announced this month that it was shelling out $7-billion to pick up a collection of BP’s distressed assets, it did not pay anywhere near 10-times revenue.
From my vantage point, it seems timing is a master not even powerful giants such as BP and Disney can control.
Have you found timing to play a role in the value of businesses in your industry? Please use the comments section below to share your experience.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company at www.BuiltToSell.com/blog.