Yahoo & Jabong Acquired: The Importance of Valuations in Business

Valuations will go up and they will go down but if you are around then you can take advantage of the cycle. (Photo: The Quint)

Two interesting transactions took place within 48 hours of each other. Verizon bought Yahoo and Flipkart’s Myntra bought Jabong.

Although both deals were widely speculated but the details are still very interesting. The transactions reminds one of the ‘Man in the Mirror’ song by Michael Jackson. Different times. Different contexts. Yet, the same enduring message.

Even though every investor believes that their company will never fail but the fact is that no one is too big to fail.

Yahoo, a company that was considered to be the internet in its early days still gets one of the highest hits on its home page apart from Google. Yet, Yahoo was sold for $4.84 billion that is far less than what it was worth in its prime i.e. $125 billion. Yahoo had denied a $20 billion deal that Microsoft offered in November 2008.

Similarly, Jabong was valued at $1200 million at its peak and for a company that started with a capital of $275 million, a selling price of $70 million is a huge setback. Like Yahoo, Jabong had also refused an acquisition offer from Amazon of $700-800 million .

The Yahoo experience teaches an important lesson to investors and entrepreneurs. Yahoo also made two right decisions in the past, one to partner with Softbank and create Yahoo Japan in 1996 and second, to invest $1 billion in Alibaba in 2005.Both of these were difficult decisions but it paid out well.

These two instances show that valuations swing dramatically and there is no surety of eventual returns. So to take advantage of the valuations, you need to understand them well.

The man in the mirror is saying that founders, startups and investors should celebrate business successes rather than funding rounds!

Read the full story on Bloomberg Quint.