ITV buys Friends Reunited website

[Top Hat]

ITV buys Friends Reunited website for £120m
http://news.bbc.co.uk/1/hi/business/4502550.stm

[Jayne]

Lucky people :D

Jayne

[mattk]

Good for them.

It was interesting watching Dragon's Den last week, with the kid who runs the astudent digs site, the Dragon's advice was build it up and sell it off. I can't see how a site like Friends Reunited will ever make £120m in revenue ever, let alone profit - but there you go!

[Top Hat]

In 2004 Friends Reunited made profits of £4.6m on turnover of £8.8m.

Gives them a PE of 26.

[mattk]

In 2004 Friends Reunited made profits of £4.6m on turnover of £8.8m.

Gives them a PE of 26.
In English?

[SillyJokes]

£30m is ok but it's not like it's regular money is it?

[Top Hat]

In 2004 Friends Reunited made profits of £4.6m on turnover of £8.8m.

Gives them a PE of 26.
In English?

Price Earning Ratio of 26, (Price / Earnings = PE, 120M / 4.6M = 26)

Very common way to value a company, and 26 is high, most companies would expect 4 - 10, but they have grown very quickly so the price may well be justified

[MarkPearson]

Yes, this kind of business which sells information has little overheads meaning huge profits on turnover.

Very nice for the couple who started the site and still run it from their own home!

[mattk]

Price Earning Ratio of 26, (Price / Earnings = PE, 120M / 4.6M = 26)

Very common way to value a company, and 26 is high, most companies would expect 4 - 10, but they have grown very quickly so the price may well be justified

Interesting. Thanks for the simpleton's explanation!

[keirms]

Assume a company had sales of £100K and gross profit of £25k. How would an accountant value that company?

£25K multiplied by a number between 4 and 10 based on other factors such as customer base etc?

Just wondering...

[Jayne]

Well i'm thinking of doing..Old work mates reunited :lol: :lol: :lol:

Million dollar pixels, need I say more!

Jayne

[Top Hat]

Assume a company had sales of £100K and gross profit of £25k. How would an accountant value that company?

£25K multiplied by a number between 4 and 10 based on other factors such as customer base etc?

Just wondering...

I think an accountant would value your company as assets - liabilities = net worth.

With most businesses Annual Profit x 5 to 10 is probably the best way to value them.

[thekitchendesigner]

Yes, this kind of business which sells information has little overheads meaning huge profits on turnover.

Very nice for the couple who started the site and still run it from their own home!

do they really run it from home???

[Steve Roberts]

I just did a quick check and Friends Reunited's 'raw' figures, as of their most recently audited accounts:

£8.9m turnover
£4.6m operating profit
33 staff
£491k Net assets
£726k Directors remuneration

Over 50% profit, which is excellent. However, to pay £120m+ for a company making £5m profit is a huge multiple (24). You could earn more than that simply by leaving the money in the bank. As such, ITV must have some very big ideas.

It's a great deal for the vendors though, especially as they'll get 75% tax relief, which means they'll only pay 10% tax. Good luck to them.

[MarkPearson]

I seen a documentry about them, it shown the owners working from home.

But from what I just read someone says they have 33 employees, so this does not add up!

[Steve Roberts]

I seen a documentry about them, it shown the owners working from home.

But from what I just read someone says they have 33 employees, so this does not add up!
With an internet company, it could be 33 people working from 33 homes?

[MarkPearson]

I seen a documentry about them, it shown the owners working from home.

But from what I just read someone says they have 33 employees, so this does not add up!
With an internet company, it could be 33 people working from 33 homes?

Yes, for that kind of business thier is no reason why it can not be run by homeworkers.

Kind of makes the figures it sold for even more impressive!

[Rob Holmes]

I seen a documentry about them, it shown the owners working from home.

But from what I just read someone says they have 33 employees, so this does not add up!

They've just moved into offices (I have friends who know them)

Rob

[Top Hat]

Over 50% profit, which is excellent. However, to pay £120m+ for a company making £5m profit is a huge multiple (24). You could earn more than that simply by leaving the money in the bank. As such, ITV must have some very big ideas.

Hi Steve,

What sort of range of PE (multipliers) are you seeing with the companies you're selling at the moment?

I'm particularly interested in fast growing internet retailers :D

[Norseman]

Yes, this kind of business which sells information has little overheads meaning huge profits on turnover.

Very nice for the couple who started the site and still run it from their own home!

Actually the had a managerial buy-out a few years ago, so the couple havn't played a part in daily operations the last few years.

What big companies pay alot for is the actual market information such internet companies collect. Same thing with skype really. ITV does undoubtedly have plans of leveraging their new dot.com though!

Any developers wanna help me develop my site into a networking site ;)!! Make us some £million's :D

[Steve Roberts]

Over 50% profit, which is excellent. However, to pay £120m+ for a company making £5m profit is a huge multiple (24). You could earn more than that simply by leaving the money in the bank. As such, ITV must have some very big ideas.

Hi Steve,

What sort of range of PE (multipliers) are you seeing with the companies you're selling at the moment?

I'm particularly interested in fast growing internet retailers :D

Hi there,

It obviously depends on the sector and whole host of things, most notably:

The lelvel of risk
Bidder competition
Return (profit)

Obviously it's the last of the above which you're asking. But remember it's "adjusted" profit which matters. An owner maybe paying themselves large bonuses to reduce their Corp Tax liability. Equally, the owner may need replacing when the company is sold. As such, when you do the above calculations, we're selling SME's for an averge multiple of EBITDA of about 10, including net assets.

[UK2004]

Valuing a company is a bit omre complicated generally than the factors given here and when people pay a lot for a company there is 99% of the time one common actor, they believe 100% that they can make the company more profitable and more efficient. When I was working in a well known iBank in the City I was alongside a couple of M and A teams and they are constantly analyzing where there is growth potential and room for streamlining and also how to bump up a company in the ppitchbook to make it looks like it has dog's danglies potential, that is why you hear of people paying big money for a company and then it flopping, funny business, just always make sur eto look after your own interests!

[cjd]

The only way to get that sort of valuation is to have good and persistant PR (ie be contantly in the news), good growth both in the past and obviously in the future and to nurture a really dumb and out of ideas buyer with a management team trying desperatly to make a name for themselves. (It's a pre-requisite that the buyer has a weak Board with powerless non-execs)