Methodology
- The list is ranked by the estimate of the absolute dollar return to the acquirer.
- Acquisitions must be at least a majority stake in the target company.
- Revenue multiples are used to estimate the current value of the acquired company, equal its current estimated revenue x the market cap-to-revenue multiple of the parent company’s stock.
The top 15
15. VMware being acquired by Dell EMC
EMC acquired 80% of VMware for $625 million, which is doing $9 billion in revenue.
The interesting thing is all the complicated EMC Dell stuff. VMware was first acquired by EMC and EMC was swallowed up by Dell. However, Dell is actually trading at a significantly lower value than what their stake in VMware is worth.
On the one hand, it’s a cheap way to pick up some access to VMware. On the other hand, the stock market is putting a massive discount on it for its lack of being able to escape out of Dell.
14. Pixar
Disney bought Pixar in a $7.4 billion deal. The absolute dollar return is about $2.3 billion.
13. Venmo picked up by Paypal
Venmo picked up by PayPal in 2012 for $26 million. Venmo was recently announced doing about $300 million in annual revenue within PayPal.
12. Bungie
Microsoft picked up Bungie for $30 million, the current market cap contribution of which is estimated to be about $8 billion currently. The interesting thing is the Halo franchise has generated about $5 billion in revenue over the life of the franchise, while the Xbox franchise generates about $11 billion in annual revenue from Microsoft. It was the killer app.
11. Apple’s purchase of P.A. Semi
Apple purchases P.A. Semi for $278 million, which at the time was working on very advanced ARM infrastructures, developing IP for new chips that they didn’t manufacture – semiconductor, which many firms these days outsource. It’s a little odd for Apple to be buying this research CPU company right after the first iPhone had come out.
Apple’s market cap back then wasn’t trillion-plus dollars. This is a decent-sized bet for them, as the iPhone being as differentiated and magical as an experience as it does, is in many ways attributable to Apple making their own silicon, which of course all started with P.A. Semi. It can basically be said that 25% of iPhone revenue is attributable to making their own silicon, as 25% of the differentiation is from the chips, and 5% of making their own silicon is attributable to their acquisition of P.A. Semi.
10. Marvel
Purchase Price: $4.2 billion; Estimated Current Contribution to Market Cap: $20.5 billion; Absolute Dollar Return: $16.3 billion
Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts, for an average of $2.2b annually.
Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films. Therefore Marvel is estimated to generate about $6.75b in annual revenue for Disney – 10% of total revenue.
9. Google Maps (Where2, Keyhole, ZipDash)
Total Purchase Price: $70 million; Estimated Current Contribution to Market Cap: $16.9 billion; Absolute Dollar Return: $16.8 billion
Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap. Ironically the majority of Maps’ usage comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash.
8. ESPN
Total Purchase Price: $188 million; Estimated Current Contribution to Market Cap: $31.2 billion; Absolute Dollar Return: $31.0 billion
With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding 35 years, single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees.
7. PayPal
Total Purchase Price: $1.5 billion; Value Realized at Spinoff: $47.1 billion; Absolute Dollar Return: $45.6 billion
Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? eBay spun off PayPal into a stand-alone public company in July 2015, and its value at the time is a cool 31x what eBay paid in 2002.
6. Booking.com
Total Purchase Price: $135 million; Estimated Current Contribution to Market Cap: $49.9 billion; Absolute Dollar Return: $49.8 billion
This purchase might have ranked even higher if Booking Holdings’ stock weren’t down ~20% due to COVID-19 fears when the analysis was done
5. NeXT
Total Purchase Price: $429 million; Estimated Current Contribution to Market Cap: $63.0 billion; Absolute Dollar Return: $62.6 billion
NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally, every dollar of Apple’s $260b in annual revenue comes from NeXT roots.
4. Android
Total Purchase Price: $50 million; Estimated Current Contribution to Market Cap: $72 billion; Absolute Dollar Return: $72 billion
Google Play Store reaches an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for the largest ROI multiple: >1400x.
3. YouTube
Total Purchase Price: $1.65 billion; Estimated Current Contribution to Market Cap: $86.2 billion; Absolute Dollar Return: $84.5 billion
With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. That said, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But the debate would be left over the division’s profitability to the podcast.
2. DoubleClick
Total Purchase Price: $3.1 billion; Estimated Current Contribution to Market Cap: $126.4 billion; Absolute Dollar Return: $123.3 billion
Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again …
1. Instagram
Purchase Price: $1 billion; Estimated Current Contribution to Market Cap: $153 billion; Absolute Dollar Return: $152 billion
Reported by Bloomberg to be doing $20B of revenue annually now within Facebook, Instagram takes the crown. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At the risk of stretching the MJ analogy too far, Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO – buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world-at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.
Content source: Acquired. (2020) The Best Acquisitions of All Time. Available at: https://www.acquired.fm/episodes/acquired-top-ten-the-best-acquisitions-of-all-time?fbclid=IwAR0MMcgCb_z9GEwdFAXklqsU5PyfR1UkeUkCV5WkCaVK2fOLNi6ZV9u-cz0 [Accessed on 13 Apr, 2020]
with HT 