Recently Kauppalehti and ArticStartup have been amongst the media that have reported on the acquisition of IRC-Galleria.net by the Sulake Corporation.
Kauppalehti had dug through the latest financial documents by Sulake Corporation that in compliance of the IFRS accounting (that public companies in Finland use) discloses the transaction price. From that source Kauppalehti had found it to be 12.5 million €, and further speculated that it would be 6.6 times net sales, and 25 times earnings. Additionally the IRC-Galleria owners received 105144 series A stock from Sulake at a price of 118.88€ per share.
There may be certain obligations that prevent me from discussing the full details of this deal I negotiated and put together. However there are some things I wish to comment on.
In a very summarized form my (and the whole team's) mission in IRC-Galleria at that time was twofold: 1) to build an amazing business (and an amazing service), 2) to find a very good partner to ensure its future growth with. The second turned out to be an assignment to evaluate potential buyers and eventually sell the company. IRC-Galleria was in the talks towards many directions for quite a while: over a year, as I mentioned to the press when we published this acquisition. We always considered many options and many different types of buyers: media companies, software companies, something creative and unusual, and even considered taking a venture capitalist on board and growing the thing as an independent venture. There were many VCs eager to finance IG, which didn't necessarily need the money: it had plenty of it in the bank and more coming in daily, with pretty extreme levels of profitability being the monthly norm.
In the end it seemed that Sulake was a soulmate of IRC-Galleria in a sense that their thinking (at least the management's business thinking) was quite similar, and they shared similar views on a range of topics. Sulake also seemed to be in the best and most believable position to grow IG internationally, plus its a good company full of driven and competent people. IG had many offers on the table, but in the end Sulake convinced us that their way is the way to go, and so we did. I acted as the chief negotiator (from IG's part) in making the deal - even up to the scary point of negotiating against a group of lawyers alone in a conference room :) it was a great experience and my 4th tradesale, so I had the benefit of knowing at least something about what's there to decide in a deal like this.
Some of the other discussions IG had ongoing were, to my opinion, bordering on textbook cases of classic failures. There were certain large corporations that gave a few serious offers to IG in multiple millions of cash, and more later (based on milestones), but the way they conducted the discussions didn't exactly inspire confidence in anyone. It is beyond me why a corporation that's considered to be competent in acquisitions does not listen to its potential partner; doesn't sound like a very good idea, now does it? People may claim that even talking about this (what went on "behind the scenes") is unprofessional. However please remember that one of the main purposes of this blog is to share views and insights, and in this case my judgement tells me that this is something worth sharing: even with a great company like IG it's not always rosy and wonderful. Or as one potential buyer said to us (direct quote, not kidding) "the best deal in my opinion is a deal where I can screw over the other party as much as possible"...
Back to the details Kauppalehti wrote about: they are technically correct. However there may be something else in the deal that's not covered by those financial numbers. Revenue figures Kauppalehti uses seem to be based on a less than 12month, older FAS fiscal cycle. So speculation on those is not an entirely accurate exercise.
The real question is: how much is that 105 144 stock worth then? Since all ownership records in Finland are public, it is rather easy to find out that Sulake has 2 459 984 stocks outstanding. That makes the IRC-Galleria owner's share to count as 4.274% of the entire Sulake Corporation. What's that worth then? The infamous SAI 25 list from Silicon Alley Insider has Sulake's value at 1.25 billion $. I am quite convinced that the Alleyinsider made that list only to get good coverage as people gossip about how ridiculous hype it is. Just to say that I don't agree with their PR tricks and views, still they are just about the only player out there that's bold enough to make suggestions. Using their big number for some simple math brings the grand total to 53.43 million $ for IRC-Galleria owners in stock alone. Hype or no hype?
The SAI 25 list was made at a time when Sulake was not yet profitable (as it is now) and didn't have over 100 million registered users (now it has more than 108 million, with 100K coming in every day). But then on the other hand: there was no failed wall st bailout around either ;-) Still the real value that comes from a profitable and fast growing business can never be ignored even in a times of economic downturn. Especially when most of research says that people actually use the net more and play more games when things are looking bad outside. Which sounds kind of logical to a Finn with the slush and all.
What's the whole thing really worth? That's anybody's guess at this point. I once read an excellent interview of Sir Richard Branson who put it quite nicely: "I have no idea how rich I am. You only know when you are selling, and I'm not selling." The value of anything prior to an exit is always zero (unless there's dividend, and there rarely is..) and I'm sure all the "worth millions on paper" -people from the Dot-Com days remember this quite keenly ;-) I think I must have been worth some ~5M€ "on paper" at one point in the good old days of 2000 :)