A couple of weeks ago, my neighbor had a yard sale. Like others in the same position, she was glad to take any offer for no-longer-wanted stuff. So what if she paid $100 for that lamp a few years ago? She now considered it junk, and $5 was better than the nothing she would get if the trash collector took it away.
In fact, the 5 percent recovery she got on that lamp is actually pretty rosy by some recent e-business fire-sale standards. Take VeriSign’s domain-name biz, for instance.
Buy It Now
VeriSign recently sold off its Network Solutions domain registrar business for $100 million. That sounds like a lot, but consider that VeriSign originally paid an estimated $21 billion for the company. That’s a recovery rate of .05 percent. My neighbor made out 10 times better with her $5 lamp. Now who paid too much?
Of course, there are myriad differences. For one, VeriSign bought Network Solutions with a wheelbarrow full of stock, not real money. Not even close to real money, it turns out. In fact, no one is even bothering to try to figure out what the deal was really worth.
If you’re not a VeriSign shareholder, it probably doesn’t matter anyway, right? Wrong. Today’s yard-sale clutter isn’t just a reflection of what was hot back in the day, it’s a reminder that enthusiasm can cloud good judgment.
The deals don’t have to be acquisitions to be too good to be true. Google’s impending IPO, which for technical reasons is all but a lock to happen in the spring barring a market collapse, is expected to value the search superstar at around $20 billion.
Now, Google’s a great company, and if I had prefloat stock or options, I’d hire an armed guard to watch them day and night. But is it worth $20 billion? Part of that answer lies in the company’s heretofore closely guarded financials, but the rest lies in good common sense. That $20 billion is probably a couple of billion dollars’ worth of real solid valuation and a whole bunch of expectations, which can be deadly if a company fails to live up to them.
Then there’s the Orbitz IPO. Not as spectacular as it once might have been, had Orbitz been able to avoid two-plus years of mauling on its way through the regulatory gauntlet.
Now, $300 million — the expected price of the IPO — still isn’t chump change, but everyone’s had a chance to get so used to Orbitz that its offering isn’t nearly as tantalizing as it might have been.
So it boils down to simple caveat emptor, then buyer beware. It’s true when you buy a bottle of water for a buck forty-nine, and it’s many times truer when you’re plunking down billions of dollars for a company.
It’s also true that history tends to repeat itself. Next time you plan to buy something with a hefty price tag, browse the bargain bin first for a reminder of how quickly things can land there.