Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
π Private equity is eating at Denny's (here's why)
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Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:
β π They bought MySpace - and lost $545 million Imagine nailing a trend years ahead of time - but still losing over $500 million. That's what happened when legacy media giant News Corp acquired MySpace (anyone else remember setting their Top 8?) On July 18, 2005, Rupert Murdoch's media company acquired MySpace for $580 million in cash. Let's take a look at the deal, what happened, and what we can learn from it. The Acquisition News Corp, owner of tabloids, newspapers, and TV networks, was looking to diversify away from print and traditional media in the mid-2000s. The writing was on the wall: The internet would create the next wave of media businesses. At the time, the concept of a social network was just emerging (Facebook was created in early 2004 and was only for college students until late 2006). The Creation of MySpace MySpace launched in 2003 as a scrappy alternative to Friendster, evolving into a chaos of glittery profiles and embedded music players. By acquisition time, it was the internet's sixth-most-visited site with 25 million users. But the path to making a return on the $580m investment wasn't clear. Could a social network make money like a TV network or newspaper? The answer was unclear at the time, and advertisers were hesitant to pour money in. News Corp made a big bet. With MySpace's massive user base, News Corp could easily generate massive revenues with by leveraging its existing advertising business, right? News Corp poured in resources post-deal: $200 million+ on server upgrades, a $900 million Google ad partnership in 2006, and aggressive marketing to hit 100 million users. The Result Fast-forward six years: News Corp offloaded the fading platform for only $35 million, a crushing 94% loss. But the deal didn't start poorly. In fact, two years after it closed, analysts gave MySpace a $12 billion valuation and applauded News Corp for a great acquisition. The cracks only emerged later. Facebook's 2006 launch of the clean, algorithm-driven News Feed changed everything. MySpace, cluttered by spam and a dated interface, lost relevance. Here are the results:
MySpace was the first mover in the space, but quickly lost ground. It reminds me a lot of Yahoo vs. Google. Yahoo was founded four years before Google, but quickly lost market share to the newcomer. See if you can spot any similarities between the two stories: β
Google vs. Yahoo β ββ Google beat Yahoo due to its superior search technology, clean user experience, and focus on a search-first business model, while Yahoo was bogged down by its portal-based, human-curated directory approach. β
Facebook vs. MySpace ββ Facebook beat MySpace by focusing on a cleaner interface, real-name identity, and a better user experience, while MySpace struggled with a cluttered design, spam, and an over-reliance on advertising. β β By 2010, with Facebook at 500 million users, MySpace was bleeding $200 million annually, forcing brutal layoffs and a desperate pivot to music streaming. News Corp got the trend right - social networks would become massively valuable (Facebook went public in 2012 at a valuation over $100 billion). But they picked the wrong horse in the race. And they prioritized the wrong things while trying to run the business. Lesson: Success in M&A isn't just about predicting a trend. You also need to understand the nuances of the business model and understand how to best capitalize on the trend. π Why private equity is eating at Denny's Denny's got taken private at a $620 million valuation. This follows a trend of PE getting into the casual dining business. For several reasons, casual dining chains are the dream setup for special situation investors right now. According to this article, PE firms love the setup because restaurant chains are selling at low, single-digit multiples; most are bloated and haven't adapted to the fast casual age of dining. There's lots of value to be created by turning these businesses around. Here's the author of the article linked above explaining the trend: β β
π The ultimate guide to buying a business If you've read this newsletter for any amount of time, you know I'm obsessed with buying businesses. And I love talking to others who have bought companies. I've recorded dozens of conversations with some of the best business buyers I know - and I've put them all online for you to listen to. There are hundreds of years of lessons on business buying for you to absorb. Ranging from a $1 million accounting firm to $100 million hotels, we've got a bit of everything. We've got self-funded searchers, private equity partners with billions under management, and horizontal holding company owners who buy a new business every month. My goal: Assemble the greatest collection of business buying lessons from people who have really done it. No matter what type of business you're looking to buy, I probably have a story for you. Check out the interviews below. βWatch on YouTubeβ βListen on Spotifyβ βListen on Apple Podcastsβ Have a great day, Sieva P.S. - Are you hiring? Get started with top global talent from Somewhere (I'm a customer and investor) What did you think of today's newsletter? Rate this newsletter using the poll below: β Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning. β β β |
Sieva Kozinsky
Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today: A $71 million buyout with culture fit issues Learn to buy any type of business π An LBO with culture fit issues Over the last few months, I've written about deals that either failed spectacularly or were massive homeruns. Today, I'm writing about one that's somewhere in between. It was a good deal with a pretty good result, but it was hampered by a culture fit issue. Let's dive in. The Deal...
Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today: They bought a struggling company's best asset - and made billions How to roll up software businesses (and more) π Turning a $2.3 billion investment into $6 billion+ Corporate carve-outs can be great opportunities for buyers. Today we're going to look at a classic example of one. A "carve-out strategy" is when a parent company strategically separates a part of its business (a division or...
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