Summary
eBay just agreed to sell 65% of Skype to private investors. Because Skype has been around for several years and has not preformed as expected, we have to ask "why invest?"
Analysis
When companies pursue an acquisition candidate for strategic reasons, such as Disney purchasing Marvel Entertainment, the strategy is apparent. Typically the buyer is looking to expand their product line or expand geographically. The strategy behind an equity firm purchasing a company is not as transparent. The general strategy of the firm or fund and prior investments can be reviewed, but the underlying reasons and specific outlook is still cloudy. In the case of eBay selling 65% of Skype, the company’s strategy for selling has been in the news for quite some time. The buyers’ intent is uncertain.
Owning 65% gives the buyer several advantages- 1. They control the company, 2. they have great BOD presence (assuming eBay will have at least one seat), 3. it gives credibility to an exit strategy, and 4. if Skype does well, there’s a natural buyer on an exit strategy. But this doesn’t explain why the VC firms made the investment in the first-place. Skype has been around for several years and has not produced as hoped. Perhaps the VC firms believe that the company will do well with a renewed focus and set of objectives. This has worked well in the past (i.e. SafeNet selling to Vector Capital).
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
