M&A Alert - August 10, 2009

Target: Target
Buyer: Buyer

Facebook Agrees to Acquire FriendFeed

Transaction Overview

On August 10, 2009, Facebook agreed to acquire FriendFeed for a reported $47.5mm in cash and stock.

Target Description

FriendFeed is a social networking application which allows users to share comment and discuss web pages, photos, videos, music and news items in real time. As of December 2008, FriendFeed had nearly 1mm visitors, which represents a tenfold growth since June 2008. FriendFeed raised a total of $5mm funding from Benchmark Capital in 2008 (Partner: Peter Fenton) at a $20mm post-money valuation. The Company’s founders are an all-star group of ex-Google employees that created Gmail, Google Maps and Google Groups. Friendfeed has 12 employees. Friendfeed is based in Mountain View, California.

Buyer Description

Facebook is a social networking site that enables members to build personalized web pages, interact with friends, and share music, photos and videos. As of September 2009, Facebook has 300mm users globally. Mark Zuckerberg, CEO and Founder of Facebook, was the executive sponsor of the acquisition. Founded in 2004, Facebook is based in Palo Alto, California.

Transaction Parameters

Although transaction value was not formally disclosed, the reported value was $47.5mm including $15mm in cash and the remaining in Facebook stock.

Strategic Rationale

Facebook acquired an extremely talented team including Paul Buchheit (who was involved in developing Gmail), Bret Taylor and Jim Norris (both of whom were involved in developing Google Maps) and Sanjeev Singh (who was involved in developing Gmail and

Google Search). Friendfeed’s features and technology help Facebook respond competitively to real-time web and mobile applications such as Twiter. Facebook had already begun to build Friendfeed-like features into their application, but this move brings a visionary and talented team into Facebook to bolster Facebook’s efforts around the real time web. Based on an estimated 2mm FriendFeed users (a rough approximation), the purchase price is $23.75 per FriendFeed user. A few datapoints on recent social media company acquisitions are presented below for perspective. These numbers are total transaction value paid divided by number of registered users at the time of acquisition or investment, in other words, how much is the acquirer or investor paying for each user:

Walt Disney / Club Penguin $1,000.00
Microsoft / Facebook (partial stake) $625.00
Google / YouTube $21.38
Digital Sky Investors / Facebook (partial stake) $50.00
News Corp (via Intermix acquisition) / MySpace $7.45
MTV /XFire $25.50
Facebook / FriendFeed $23.75
September 2009 Twitter Funding (partial stake) $20.001
CBS / Last.fm $18.70
MySpace / iLike $0.40
Note: 1) A rough estimate at $1b valuation (that was used as a base for the $100mm funding received in September 2009) based on 50mm unique users (Comscore, July 2009).

Architect Partners’ Observations

This appears to be an acquisition primarily motivated by bringing a talented team into Facebook with real time web “DNA”. The increasing popularity of Twitter has demonstrated end-user affinity for a simple way to quickly share information with their personal networks. While $47.5mm is rather expensive, only 30% of the purchase price was cash with the balance being paid in relatively highly valued Facebook equity. Benchmark, the only outside investor in FriendFeed, also ends up with a small stake in Facebook, which they may have found attractive.


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