Interpublic Group made a smart play in 2006 and picked up some stock in Facebook at a nice, low price. And now, the ad conglomerate is cashing in – unloading half its stake through a private sale. That’s good for a pre-tax profit of $132 million. Not bad for a single trade, right? Well, there’s more to this than a simple transaction. In fact, IPG’s unloading the stock means a lot for the rest of us. Here are the top five ways you’re affected by this:
1. A test of liquidity: we’ve all seen the disclaimers in the emails SharesPost sends after an auction, not to mention the caveats used by journalists and bloggers. Facebook isn’t publicly traded. Implied valuations are imperfect, because the stock is relatively illiquid. Yes, this is true. We should be cautious of the valuations implied, especially when smaller transactions are involved. What’s interesting about the IPG deal, though, is that it wasn’t small. The company moved a block of Facebook shares for $133 million.
This isn’t trivial.
Even as we acknowledge the escalating hype around Facebook stock, especially ahead of an expected Q4 initial public offering filing, it’s impressive that such a big position can move at a fairly solid valuation.
2. About that valuation: the sale results in an implied Facebook valuation of $65 billion. Okay, that falls pretty short of the valuations of above $80 billion that we’ve seen after SharesPost transactions. But, this isn’t cause for alarm. Some have been seeking to get whatever Facebook stock they can at almost any price, it seems. You might be able to think that way a few million dollars at a time, but for a sale the size of IPG’s, the buyer’s going to have a bit more negotiating power.
The good news is that the deal’s valuation is roughly consistent with those of other large buys this year (e.g., the Q1 Goldman Sachs transaction). Not quite bad news (tepid, maybe?) is that the SharesPost deals do seem to be colored to a certain degree by constraints on liquidity. That said, let’s not forget that when LinkedIn debuted on the NYSE, it blew past its ShareSpost-implied valuation pretty quickly.
3. A long way to go: since we’re (still) talking about valuation, let’s spend some time on the IPO target that Facebook appears to have set: $100 billion. To say the least, $85 billion is a lot closer to that than $65 billion is. I know … duh. But, think about it: a big dreade leaves Facebook only two thirds of the way to its target IPO valuation.
Again, it’s still way too early in the game to tell if $100 billion is too high – or too low. But, the $65 billion valuation implied by the IPG sale and recent capital markets mayhem suggest that Facebook may not have had as easy a run as it thought.
4. Willing to sell: even though some investors are snapping up Facebook stock just as fast as they can, there are still investors willing to sell. And as IPG has shown us, they’re willing to unload some big positions in the biggest name in social media. The notion that everyone wants a piece of Facebook is at least somewhat softened by the IPG sale, not to mention the former employee sales on the likes of SecondMarket and SharesPost.
5. Nothing is a sure thing: the outcome is still very much in play. We have no idea where Facebook will price its IPO. Demand on SharesPost and SecondMarket remains high. People are willing to sell … and buy.