Microsoft acquires Greenfield Online

by Kris_Tuttle on August 29, 2008

Green­field Online (SRVY) is a long-suffering online sur­vey com­pany that has just been acquired by Microsoft for $486M.   At first we were a bit sur­prised because in the past it’s been hard to jus­tify high val­u­a­tions for online sur­vey com­pa­nies but in this case Green­field was val­ued as much if not more for their online shop­ping com­par­i­son sites than for the tra­di­tional online sur­vey business.

As a research com­pany our­selves we watch this space fairly closely, espe­cially in terms of strat­egy, exits and valuation.  To be sure high qual­ity sur­vey research is valuable.  There is a per­cep­tion how­ever that it isn’t that hard to repli­cate or worth pay­ing that much for.  What’s inter­est­ing about Green­field is that they entered a fairly related field that had a bet­ter busi­ness model and cre­ated a much more favor­able exit for the com­pany than they would have ever had as an online sur­vey com­pany, almost no mat­ter how well they executed.

A closer look at the busi­ness shows that the com­par­i­son shop­ping busi­ness was about 1/3 of rev­enue but nearly 60% of profits.  At the same time the growth rate of 50% YoY com­pared to over­all flat rev­enues in the online sur­vey business.  (All this based on com­pany reported num­bers from May 2008.) 

The pur­chase price rep­re­sents about 3.2–3.5x sales depend­ing on whether one looks at LTM or man­age­ment pro­jec­tions for the cur­rent year ($148M).  The 12x EBITDA num­ber and 48x LTM earn­ings are fairly generous.

Research con­tin­ues to evolve and with every year it’s clear that data and pri­mary infor­ma­tion is far more valu­able than the tra­di­tional con­tent of ana­lyst opinions.    At the same time the exit strat­egy may need to incor­po­rate ele­ments that would appeal to non-traditional buy­ers like Microsoft in order to gen­er­ate higher valuations.

It’s a good time to be an inde­pen­dent research company.

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