In December 2010 I wrote a post saying that Google shouldn’t buy Groupon but that it would be a good idea for Groupon to sell at the then rumored price of $5.3 billion with a $0.7 billion earn out. As of Friday’s close, Groupon’s market cap is $6.3 billion or 5% above what the full deal consideration would have been. So should they have sold back then?
It is still far from clear, especially now that important details around the deal have emerged from an article in the WSJ. The key point from the article is that a deal might have taken as long as 18 months to close due to scrutiny by regulators. Google was willing to offer a $800 million break up fee to account for that but it is still a monstrous overhang and is an issue for Google in acquiring companies of scale.
Groupon did succeed in going public and is an independent company now. So one way to look at the decision is trading off execution risk against regulatory risk. While execution risk is huge it is to some degree more controllable than regulatory risk. It does seem though that Groupon may have relied on some overly optimistic projections on how much better it could do using data going forward (as Business Insider found the researcher who came up with that estimate had just joined Groupon from Google).
We will soon be able to read more about how the deal almost happened and the decision making around it when the book “Groupon’s Biggest Deal Ever” comes out tomorrow. Should be a great case study in decision making under extreme uncertainty.