New Study Establishes Valuation Benchmarks for Internet Companies

Bond & Pecaro's "CyberValuation" Profiles 595 Mergers, Acquisitions & IPOs

WASHINGTON, DC, July 6, 1999—Bond & Pecaro, a Washington, D.C.-based consulting firm, has completed an in-depth study on the valuation of Internet companies. Everyone from the boardroom to the water cooler knows that Internet firms have been commanding astronomical premiums over standard measures of value. The question is, how much is enough, how much is justified? Bond & Pecaro's published report, CyberValuation, analyzes 595 recent transactions in an effort to highlight trends and offer a toolkit of practical measures of valuation for shareholders, CFO's, lenders, investors, and industry analysts.

"As we became involved in the growing flurry of mergers & acquisitions of Internet companies in recent years, we realized that everyone from CFO's, to casual investors is grappling with valuation standards for this emerging industry," says Tim Pecaro, principal at Bond & Pecaro. Bond & Pecaro has provided financial consulting and valuation services to the communications and media industries since 1986. "This is very much like what we saw in the mid-1980's in the cellular telephone industry — until the industry matures, 'value' is much more an estimation of potential than a demonstration of actual financial success."

The analysis has developed revenue, subscriber and monthly unique visitor valuation multiples for ISP's (Internet Service Providers), portals, Internet retailers, and business-to-business e-commerce ventures. Transaction profiles include details such as purchase price, offering proceeds, market capitalization, revenues, and subscribers or unique users of the Internet entity. The report also includes information regarding transaction structure where available and abridged financial statements for selected companies within each sector.

Bond & Pecaro principal Jeff Anderson promises, "New transactions affect the benchmarks we've developed on a daily basis—we are committed to publishing regular updates and research studies for the benefit of our clients and other interested parties."

SUMMARY FINDINGS: Bond & Pecaro's "CyberValuation" Report

The study highlights value creation opportunities inherent in the recent round of Internet IPOs. The IPO market is ascribing large premiums to Internet companies that garner a critical mass of subscribers, viewers, or customers. In many instances, the IPO valuation multiples substantially exceed the multiples paid for Internet companies in asset or stock acquisitions. In contrast to many industries, these multiples have tended to grow in the Internet field, even as the industry begins to mature.

Portal entrepreneurs have truly pioneered a new business segment. Portal revenue and operating profit potential can be particularly difficult to predict at this early stage of development, but buyers and investors are willing to pay multiples of 29 to 37 times revenues or $285 to $340 per monthly unique visitor.

Online retailers and certain business-to-business entities also fall into this high growth group. Internet retail revenue multiples in the 30 to 36 range are commonplace. The multiples paid for such businesses as eBay.com and Priceline.com substantially exceed this range and reflect a radically different marketplace for goods and services or a reordering of the retail distribution pipeline.

As a group, the weighted average multiples paid in ISP transactions were lower, typically within the 5 to 7 times revenue multiple and $920 to $1,400 per subscriber range. Buyers and investors appear to view ISPs in a similar context to other subscriber-based businesses such as cable television, cellular telephone, and newspapers.

Investors have also ascribed more conservative multiples (12 to 13 times trailing revenues) to the business-to-business e-commerce entities. In certain instances, companies in the business-to-business sector are quite similar to traditional companies, but simply utilize a more efficient transaction and delivery model.