This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Buyout Firms Gear Up for Swipe at PayPal


That deal proved doubly wise for eBay: the company profited off its initial exit, but retained a 30% stake, which substantially appreciated by the time it was sold most recently to Microsoft Corp. in an $8.5 billion deal.

In 2005, eBay spent $1.3 billion in cash and another $1.2 billion in stock to buy Skype, then an independent public company. By 2009, when it became apparent that the voice-over-Internet-protocol company was a poor fit for the e-commerce company, eBay sold Skype at a $2.75 billion valuation, to a consortium of Skype's founders, the Canada Pension Plan Investment Board, private equity firm Silver Lake Partners and venture capital firm Andreessen Horowitz.

But eBay retained a 30% equity stake in the company as part of the deal. It would only take about 18 months for the new owners to sell to Microsoft after increasing the company's valuation to $8.5 billion.

An executive who worked at Skype when the company was absorbed into eBay said what held back its valuation was a litany of integration projects that the buyer foisted onto it - and that, free from these constraints, the company was more successful as an independent entity. However, the source said, existing within the infrastructure of a developed company likely helped both Skype and PayPal to mature as corporate entities.

Whereas, in 2005, the Skype deal was done to bring a new communication product onto the eBay platform, buying PayPal represented a well-thought-out plan to add payment functionality to eBay's auction block. Now, with both the marketplace business profitable, and the payment processor reaching maturity, if not, simultaneously, peak valuation - the former Skype exec suggested it could be the right time to sell PayPal.

Silver Lake -- the lead PE player in the buyout -- plunked down nearly $1 billion, and tripled its invested capital virtually overnight on the Skype transaction, according to a source. No wonder big-name buyout shops would salivate if PayPal puts a For Sale sign in its digital window.

Tethering itself to a mature asset that could easily be resold in a period of time -- similar to the Skype situation -- should appeal to eBay. Right now, at what one analyst pegged at a $38 billion valuation, eBay can only be a winner on PayPal, having spent just over $2 billion for its primary assets -- $1.2 billion for PayPal, and another $945 million on BillMeLater in 2008.

One source notes that holding onto a stake and putting the company in the hands of operations experts might be its best return on investment generator. And, as another points out, the abundance of discount debt comes at a time when non-traditional players are stepping up to support transactions, be it Microsoft backing Michael Dell's LBO, or Warren Buffett playing lender for H.J. Heinz's buyout.

"It's definitely not the most likely scenario," the source noted, when pressed to offer odds of a PE-PayPal transaction, "but it wouldn't be unheard of, either."

Representatives from eBay declined to comment, except to reiterate its response to Icahn in which the company said that it had explored a spin off or separation of PayPal and had concluded it didn't believe it would suit its current strategic direction.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $129.00 0.04%
EBAY $59.35 0.09%
FB $78.96 -0.04%
GOOG $543.62 1.10%
TSLA $231.58 2.50%

Markets

DOW 18,098.39 +74.33 0.41%
S&P 500 2,117.48 +9.19 0.44%
NASDAQ 5,025.2930 +19.9020 0.40%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs