Unlike the “rainmakers” and the deal hungry “power suits” in the lofty corner offices of big corporate law firms, the lower echelons of top tier firms – the overworked, often sleep-deprived articling students and junior associates who do the legal grunt work for big time mergers and acquisition – love it when a deal “craters.” They have racked up plenty of billable (albeit dry) hours in the “war rooms” specially set up for M&A work, and stuffed full of bankers’ boxes and binders of documents that must be reviewed and summarized as part of the legal due diligence process. “Boston Legal” it ain’t. ‘Due diligence,’ as its known, is most often a soul-taxing, grueling and dull process.
When the deal falls through and the principals walk away from the negotiations, these legal ‘minions’ are left with a docketful of hours that go to meet their yearly targets (and bulk up their bonuses), all without any liability or chance that an oversight might come back to bite them later. Better yet . . . they never have to look at the damn documents again. Unless, that is, the cadaver of a deal is miraculously revived and the negotiations are back on. That draws a silent, inner groan that can’t really be expressed, unless one’s reputation as a ‘team player’ be sullied.
It’s questionable what reaction, then, the lower echelons of Google’s legal reps would have had when the GroupOn deal apparently cratered. On the one hand, how much legal paper can a two-year-old Silicon Valley startup possibly generate? On the other hand, who is going to top the $6-billion that Google reportedly offered to acquire the online coupon service? I am guessing there is puzzlement all around.
Is this baby really dead, or will there be another round of negotiations?
With the Economist pointing to the GroupOn deal as yet another key move that would help Google ‘wean itself off a steady diet of online advertising revenue’, the New York Times reporting that the Silicon Valley bubble shows signs of re-inflating as Dot.com 2.0, and the Financial Times reporting that “analysts [are] split over whether [Google] had come close to over-paying, or whether it had suffered a strategic setback by not securing the deal,” what are we to take away from $6-billion being left on the table by a seeming upstart? It’s a two-year-old company, for Pete’s sake!
That prices for social media sites are going up and may be way over-valued seems to be at once a trite observation and a gross understatement, Yet, this is the essence of what Forrester Research analyst, Augie Ray, told the Financial Times. “Valuations certainly are rising for social start-ups,” he noted, saying such valuations “are based on a great del of speculation – these are not mature companies with long histories of stable revenue and profit.”
Mr. Ray did, however, point out that, “the new social companies [have] at least demonstrated they have profitable business models, unlike many companies that won backers in the dotcom bubble.” But are Dot.com 2.0 valuations really that different than Dot.com beta valuations were?
Let’s be clear. If Google – with a reported $33-billion in cash reserves and a promising local search niche that GroupOn would nicely fill for its Android-based smart phones – breaks off negotiations at $6-billion, what company is going to pay a premium over that to acquire a start-up, albeit, a successful start-up? Apple? Yes, Android mobiles have nearly caught up with the iPhone’s market share, as the Economist notes, but the iPhone holds its own when it comes to local search, and it does not need a $6-billion infusion to boost its market share. Microsoft? Doubtful.
If I were a junior lawyer working on the GroupOn deal, I wouldn’t be celebrating its “cratering” just yet. The folks at GroupOn left an awful lot of money on the table, even if a billion dollars doesn’t go as far as it used to in the apparently new Dot.com 2.0 world of social media sites.
James Barry covers internet marketing, social media and related topics for Wolf21.com, a Toroto-based firm offering a full line of SEO services.