Business Management

This month in M&A: Why Uber and Airbnb's European expansion may not increase their market values

This is a contributed piece by Brett Cole of ansarada


Bubble pricked

When Vanity Fair writes about tech one surely knows the game is up.

Square, Jack Dorsey’s mobile payments company, may become the poster child of tech’s deflating bubble. The company priced the 27 million shares offered in its initial public offering at $9 each, $2 less than the lowest figure in the $11 to $13 price range Square indicated it was seeking in its stock sale.

At $9, Square’s market value is $2.9 billion, less than half its private valuation of $6 billion.

“Square… is indeed a perfect example of the dissonance between the public and private markets,” writes Ryan Bradley in Vanity Fair.

Unicorns are about to reclaim their mythical status.

Uber, Airbnb travails

Two of the most heralded American start-ups still have major European headaches.

Uber, the ride hailing service, remains locked in battle with French authorities and two of its top executives face a trail that could bring jail time if they are convicted. London is considering rules to hamper Uber in the British capital. Brussels has banned Uber. Uber’s chief European lobbyist Mark MacGann has announced he would leave the company.

Airbnb is trying to convince French municipal governments that it wants to work with them, pay its taxes and contribute to a housing shortage in popular destinations amid complaints from the hospitality industry. Paris is Airbnb’s single largest market.

The sharing economy may have been embraced in northern California but in Europe it runs against centuries of tradition. Ways of doing business have been under the purview of business guilds or municipalities for centuries.

But Airbnb in particular, buoyed by its victory over a San Francisco referendum that would have barred short-term rentals in the city for more than 75 days a year, is trying to rally Europeans to its cause.

It hosted a three-day conference in Paris of those who rent out their homes on Airbnb. It is convinced most back its business model wherever they live in the world. Uber is the same, saying its drivers and passengers like its service.

But both companies would do well to apply a little more diplomacy in their negotiations with European authorities or risk a public relations backlash that Apple, Google, Facebook and Microsoft have faced over their retention of personal data of their European customers.

A hint for David Cameron?

David Cameron had promised to hold a UK wide vote on whether Britain should stay in the European Union by the end of 2017.

London’s tech community is however unanimous - staying in the EU is good for business. A survey found 87% London’s tech community thinks Britain should remain in the EU.

London’s budding tech scene and indeed the other cities around the UK seeking to attract tech companies can recruit the best and brightest across Europe while Britain remains in the EU.

Like the City of London, London’s tech hubs are, by dint of the tyranny of English, European centers for innovation. A British exit by the UK from the EU may cause some of the tech start-ups to flee to Berlin, Stockholm or another European city.

The UK’s tech community is lobbying for Britain to remain in the EU. It will be interesting to see if their message resonates with middle England and with the British Prime Minister himself.

M&A provides a road map for tech

If any investment bank convinces the major shareholders of a tech company the valuation they want through an IPO they are doing a very good job.

But it is clear from the IPOs of Square and Match Group, which priced its stock on the same day as Square’s at the very bottom of its marketed price range, that global equity capital markets are not that receptive to Silicon Valley’s fairy dust.

If tech investors, venture capital or fund managers, seek to get their money out of start-ups they may be better off pursing a merger or an acquisition if they want a payday. 


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