What's up with WhatsApp?

On 20th February, Facebook announced that it has bought WhatsApp for a cool $19 billion – made up out of $4bn cash, $12bn or so of Facebook shares and an additional $3bn in stock to WhatsApp's founders and employees at some point in the future. So “WhatsApp” got to do with UK business? Nothing directly, but it’s an interesting deal for a number of reasons:

Mark Zuckerburg is clearly keen on buying up the competition or at least buying more users – this deal was done but it has now been revealed that Facebook made an offer for Snapchat which was turned down. This is a classic way for businesses to grow and reach wider audiences – organic growth can only take you so far.

Jan Koum, co-founder of WhatsApp, not only takes a significant stake in Facebook but will also get a place on the board. It’s always important to assess whether some or all of the value in a business is linked to the selling shareholders/founders and working out how to keep them interested and involved in the business after sale.

Incentivising other key employees will be important to help retain the value in the business and here we see that an additional $3 billion of stock goes to the founders and employees.

The deal was done within 11 days – that’s lightening speed even for the fast-growing social media industry. But it shows that where both parties are pulling in the same direction, corporate deals can be achieved quickly.

The valuation – just how WhatsApp will justify its $19 billion price tag is the subject of much discussion in the immediate aftermath of the deal’s announcement. Will WhatsApp start displaying ads, will it help Facebook ensure that its Facebook ads reach the right audience or are they just buying 450 million phone numbers? Or does it just help secure Facebook’s foothold in the social messaging world at a time when users are turning to other apps?  Whatever the business, the acquirer will want to ensure that it will benefit from the investment it is making.  The market wasn’t so sure, Facebook shares fell by 5% after the announcement although they did recover slightly afterwards.

It will certainly be interesting to watch this one unfold and find out whether Facebook’s investment was worth it.

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