M&A Alert - December 10, 2009

Target: Target
Buyer: Buyer

MOL Global Agrees to Acquire Friendster

Transaction Overview

On December 10th 2009, MOL Global agreed to acquire Friendster for $26.4mm according to Techcrunch although other sources suggest consideration as high as $100mm.

Target Description

Friendster, an online social networking site considered the originator of today’s social networking phenomenon, has seen its fortunes eclipsed in the U.S. by Facebook and Myspace. Nevertheless, it maintains an impressive user base of approximately 115mm users, largely in Southeast Asia. Since 2002, Friendster has received $45.4mm in capital from Battery Ventures (David Tabors), Benchmark Capital (Bob Kagle), DAG Ventures, IDG Ventures (Butch Reddy), Kleiner Perkins Caufield & Byers (Russ Siegelman), Founders Fund (Ken Howery), as well as individual investors Reid Hoffman, and Josh Felser. Friendster was founded in 2002 and is based in Mountain View, California.

Buyer Description

MOL Global develops and operates a payment processing service for online websites who sell games, services, and content in Asia. MOL’s network is comprised of over 500,000 clients across 75 countries, processing 60mm transactions annually with a payment volume of $200mm per year. MOL Global was founded in 2000 by Ganesh Kumar Bangah and is based in Malaysia.

Transaction Parameters

The two private companies did not announce the financial parameters of this deal and there has been much speculation as to the consideration paid. The Financial Times reported that MOL Global may have paid as much as $100mm for Friendster. However, Techcrunch reports $26.4mm.

Regardless of the actual consideration paid, this transaction again highlights the downward bias in the value of social media companies over the past year.  With 115mm registered users and

assuming a purchase price of $26.4mm, MOL Global has acquired Friendster for $0.23 per user. Naturally, this valuation approach ignores critical elements such as revenue, cost structure, intensity of use by its user base and many other important variables necessary to accurately determine appropriate and comparable valuation levels. These nuances are evident by the wild fluxuations between the values  below. However, in situations where data availability is limited, it acts as a helpful metric for comparison purposes. Recent comparable valuation metrics include:

2009
MOL Global / Friendster (12/09) $0.23
Apple / Lala (12/09) $17.00
Twitter Private Placement (09/09) $20.00
MySpace / iLike (08/09) $.40
2007
Microsoft / Facebook (10/07) (partial stake) $625.00
Walt Disney / Club Penguin (08/07) $1000.00
CBS / Last.fm (05/07) $18.70
2006
Google / Youtube (10/06) $21.38
MTV / XFire (04/06) $25.50
NewsCorp (via Intermix acquisition) / MySpace (07/05) $7.45
Strategic Rationale

Since being eclipsed in popularity by Facebook and Myspace, Friendster has aggressively courted Asian users and developed a strong base of users in South East Asia, with 90% of its traffic coming from this region. Friendster extends the reach of MOL's online payments platform by making it available to Friendster’s 115mm strong user base.

Architect Partners’ Observations

This transaction highlights the global nature of Internet business. While U.S.-based companies frequently focus their efforts, at least initially, on the North American market opportunity, many successful businesses are being built in non-U.S. markets. Cisco’s recent acquisition of Chinese set top box maker, DVN, and the recently rumored sale process for AOL’s ICQ instant messaging service are two notable examples. It’s also interesting to note that MOL Global and Friendster had a pre-existing business relationship with MOL Global’s payment platform powering Friendster Wallet.


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