Marc Andreessen Offers a Lesson in High Tech M&A
High technology deals tend to be interesting primarily because of the absurdly high prices paid in many cases for revenue-less companies. Much of it is all “fugazi” as Matthew McConaughey’s crazy character in Wolf of Wall Street explained early on. Just consider some of Yahoo’s acquisitions over the past few years. There’s not much in the way of tangible results there.
30 for 30: Big Shot
One of the recent Tycoon Playbook enrollees tipped me off to this program last week. If you’re fascinated by deal-making and enjoy good caper flicks as well, you should get a kick out of this.
Pretend that it’s 1996 and you’re a 32-year-old businessman who’s just discovered that the once mighty New York Islanders are up for sale. The price tag is $165 million. It’s been your dream ever since you were a boy to one day own a major sports franchise. Nothing says that you have made it in America louder than ownership of an NFL, NHL, MLB, or NBA team. The only problem is that your net worth is just south of $200,000 which means that, in theory at least, you shouldn’t have a hope in hell of being taken seriously by anyone.
So what do you do? Most people would pass on the opportunity because an exercise in futility is just that, an exercise in futility. So why embarrass yourself?
The Rise and Fall of Adnan Khashoggi
Back in the 1970s and 80s Adnan Khashoggi was in the news on a weekly if not a daily basis. Rumor had it that the weapons trader turned deal-maker was one of the richest men on earth. At first the media covered him because of his luxurious lifestyle of private jets, big yachts, glamorous women, and hobnobbing with royalty. Then he became associated with the Iran-Contra and Lockheed scandals. After that he went on the decline.
Adnan was not the type of deal-maker we normally cover here. He was much more of a schmoozer than asset accumulator. His talent lay in bringing different parties together for the purpose of collaborating in business deals. If a deal was done Adnan received a handsome commission.
Bebo’s $849M Implosion Teaches a Brutal Lesson in Business
This news story gave me a chuckle as I have a long-held fascination with revolving door deals. There are two basic kinds. The unintentional and the intentional. The Bebo one is an example of the unintentional variety with a spectacular payoff.
Also-ran social network Bebo has been bought back by one of its founders for $1 million five years after that same founder, along with his wife, sold Bebo to AOL for $850 million. Sure, the couple made out like bandits, but there’s a bigger lesson here: Buying a copycat social network is a terrible idea. (source)
Some are seemingly intentional.
In a nutshell, a revolving door deal is one in which a company is sold and then taken back when the buyer is unable to make his payments. The seller gets to keep the down payment and all the other payments received to date in addition to regaining full control of the business. I believe the term was first coined to describe Kirk Kerkorian’s various deals involving Las Vegas casinos and movie studios. When a buyer came along who needed seller financing help, Kirk would accommodate them but under some pretty onerous conditions. These were created by having a set of covenants that would create a death spiral in the event that the buyer failed to comply with even a single one.
The Serial Entrepreneur vs. the Dealmaker
Today I will compare the strategies of the serial entrepreneur and the dealmaker. Both are worth studying because they have much to teach us about wealth creation. However, before we do that we will look at some important business concepts. Continue reading