As I discussed here, there are many lessons to be learned while watching TV. This week on Million Dollar Listing San Francisco we see a case of an overly optimistic seller. This is a common occurrence, as it’s easy to get attached to the sale price you have in your head.
The worst thing you could do in a booming economic period is get overly confident and believe the bubble will never pop. A strong job market fuels real estate prices. In fact, some argue that the booming tech industry is to blame for the insane real estate valuations we are witnessing today. Regardless of who is to blame, as a seller you must know your place.
When deciding to sell real estate or a company, you need to understand your position in the current economic cycle. As I’ve written before, there is a natural 8-year economic cycle – 1992, 2000, and 2008 were down years. 2016 will be no different.
Unfortunately, greed is a natural emotion. It’s intoxicating to believe the party will never end. It’s normal to want the best for yourself, your property, and your company. With this in mind, you must take calculated, not reckless, risks.
The key is to balance all data available and make a decision based on facts.
We can learn a lot from those who came before us. Let’s take a look at some high profile tech companies who had to answer the age-old question: To sell or not to sell?
In 2006, Viacom offered Facebook $750 million. Investors rejected the low offer, which prompted Yahoo! to approach the company with a $1 billion offer. Still, the offer was too low for the board. What would the world look like today if Yahoo! acquired Facebook? I don’t want to know.
A few years later, it was Facebook’s turn to pull out the checkbook when it set its sights on Twitter. Both parties agreed the valuation estimate was $500 million. Facebook presented an all-stock offer but Twitter wanted cash. Facebook’s share price at the May 18, 2012 IPO was $42.05. Today the share price is $96.44. Stock doesn’t seem like such a bad currency after all.
In 2008, Yahoo! rejected a $44.6 billion acquisition offer from Microsoft. The reigning CEO, Jerry Yang, felt the offer was too low for a company that had a market cap of $27 billion. By 2009, Yahoo!’s market cap dropped to $17 billion. Today, Yahoo! is on the mend thanks to Marissa Mayer. The company is now valued at $34 billion, which makes $44 billion 7 years ago a healthy offer.
Fast forward two years and we saw Google offering to purchase highflying Groupon for $6 billion. Then CEO, Andrew Mason, balked at the offer. At the time, Mason thought the party would never end. Groupon’s growth was astronomical. Yet, if your growth is not sustainable, it means nothing. Today, Groupon is valued at $3.2 billion.
In 2012, Rovio, developer of Angry Birds, rejected a $2 billion offer from Zynga. Instead, the company prepared for an IPO, which some Analysts predicted would value the company at $9 billion. The IPO was aborted and today Rovio is laying off staff. A happy bird in hand is better than two angry birds in a bush.
Last, but not least, Snapchat recently rejected a reported $3 billion offer from Facebook. Today, the company is valued at $19 billion. Only time will tell if Snapchat made the right choice.
It’s easy to get caught up in the emotion of a sale. If you are emotionally attached to your company, it will be harder for you to let go. This is why it’s critical to look at the data and make a decision based on economics, not emotions.