Size and scale definitely matters in today’s global business environment. If a large firm can be more efficient in delivering goods and services, it gains a competitive advantage and brings more profits with it to the owners. Although, every firm has its own motives for business combinations, many share one or more of the following characteristics that potentially enhance profitability: Vertical integration of one firm’s output and another firm’s distribution Cost saving through elimination of duplicate efforts, facilities, staff, and services.
Quick entry into domestic and/or foreign markets. Economies of scale. Increased abilities for more attractive financing. Diversification of business risk. Overall, the core motivation for many business combinations can be traced to an increasingly competitive business environment and the number of recent combinations continues to be large. To mention only a few: Google – Motorola, e-Bay -? GIS Commerce, Faceable – Mainstream, etc. Last year, one of the biggest deals in business combinations was Faceable and Watchstrap.
The acquiring company (Faceable) went as far as paid astounding amount of $1 billions to acquire internationally popular messenger Watchstrap. They paid over $4 billions in cash, $1 2 billion worth in Faceable shares, $3 billion in restricted stock, and a sit on boards of director of Faceable for Jan Oakum, the co-founder of Watchstrap. Most of the money paid, exactly $18,1 billion of it, was attributed to goodwill on the parent’s company financial statements, but is it worth it? Will Mark Seersucker’s long – term strategy for increasing the company’s value justify the price the paid for the subsidiary?
Faceable is a provider of websites and applications for mobile devices (“APS”) offering social networking, consumer communications and photo/ died sharing functionalities. Faceable also provides online advertising space. In particular, Faceable offers the social networking platform “Faceable”, the consumer communications app “Faceable Messenger” and the photo and video-sharing platform “Mainstream”. Faceable has about 1,2 billion monthly active users, $890 daily active users and $745 million mobile daily users. Watchstrap is a messaging app that used in place of your wireless carrier’s regular testing service.
It doesn’t require having a login and a password, but using a phone number instead, allowing the app look through the contact list or other people using the same app. Juan Oakum, the founder of Watchstrap came up with this idea after he created three Keep accounts in three months for he kept forgetting his logins and passwords. The app is available on many platforms and is free to download and has no ads, but it costs $1 per year after the first year. As a five-year startup company, Watchstrap didn’t make any profit, but had near $50 million annual revenue and $1 38,5 million in losses in 2013.
What type of acquisition was it? According to Regulation of European Commission (CE) on Merger procedure, Article 6 (1 (Brussels, 03. 0. 2014, Para. 4). The Transaction consists of the acquisition of Watchstrap by Faceable for the purchase price of USED 19 billion. Pursuant to an Agreement and Plan of Merger and Reorganization signed on 19 February 2014, Watchstrap will successively merge Reorganization signed on 1 9 February 2014, Watchstrap will successively merge with and into wholly owned subsidiaries of Faceable. As a result of the Transaction Faceable will solely control the entity into which Watchstrap will have merged.
Nevertheless, Passbook’s Mark Seersucker said, that Watchstrap will act like an independent company ND stay in its own Mountain View, Cilia. Headquarters. The product will stay ad-free, and the two companies will focus on growth for the next few years. Then, they’ll figure out how to make money in some way that doesn’t involve advertisement. Obviously, Faceable board of directors and co-founders had something on their mind, when they signed that $19 billion deal with Watchstrap. Forbs’ contributor Gordon Kelly suggest that it was: strategy (2014, February 20) 5 Key Reasons Watchstrap is worth $1 9 billion – to Faceable.
Forbs. Retrieved from http://www Forbes. Com/sites/curmudgeonly/2014/02/20/5,key-reasons- hats-is-worth-ban-to-faceable/ He listed 5 key reasons to pay the price: The next billion users The new SMS To stop others buying it Making Faceable a conglomerate Engagement On announcing the deal Faceable CEO Mark Seersucker referenced this specifically: “There are countries [such as] Korea or Japan where another messaging service is bigger, but if you look across the world, Watchstrap – across Europe, Latin America, India, a lot Of places in Asia -? is the clear leader. One of the reasons Watchstrap became so successful was its lack of an ecosystem. It is uncluttered and understated and simply links to a phone umber. Except for its impressive user growth, Watchstrap is also known for its high rates of engagement. It is estimated that 70% of its 450 millions of active users monthly use Watchstrap every day, while an average user sends more than 1200 messages each month. It is almost replacing SMS messaging and this potential cannot be overlooked. Watchstrap has plenty of competition, the most credible of which are Line and Weight with over mm and mm active users respectively.
Line dominates Japan, Weight dominates China. But for those exact reasons purchasing either is fraught with difficulty and raises an overwhelming umber of governmental and privacy issues. It is the same for Kaka Talk (mm users – Korean), Nimbus (mm users – India) and Hike (mm users India). Even though, none of each can match Watchstrap numbers or are for sale. With time, Faceable users are expending and growing old which is actually alienating some demographics – particularly younger generations who cannot escape their parents and family members.
Faceable might learn, that by letting the acquired companies do business independently, it can retain what make them a success, keep attracting younger crowed. “Watchstrap is the only up we’ve ever seen with higher engagement than Faceable itself,” admitted Seersucker said in a conference call to journalists after the deal was announced. Forbs (2014, February 20) In a summary, it is possible to suggest that Faceable made a right strategic move by acquiring Watchstrap. Spending $19 billions on a firm, which does not have a profitable business, may look like insanity.
Despite of it, the valuation of this company should not be done on the balance sheet along. Faceable has not as yet started to monotone the company. Watchstrap revenue stood at $15 million in the first half of last year, while losses stood at 230 million! Nevertheless, with such a large user base a lot of modernization options are available. A million users sending messages, voice, and other data should provide a good backbone to build a revenue stream. Top Messaging APS References Door, P. V. (2014, 10 29).