IPO Boutique Brief – 3.21.17 – Snap is not selling itself for $14/share

There’s a lot of grumpy men on Wall Street who like to throw cold water on theories, ideas, research and/or trades.

We will join this list of curmudgeons happily.

Snap is not going to sell itself to Facebook for $14 a share.

The article was written by FBN Securities and it has been circulated around some of the top market sites — this link is to Investopedia — but it has been posted at other sites like Barron’s.  I would encourage you to read it in its entirety but the key points are:

• Facebook tried to buy it already
• Facebook has the cash
• Facebook could remove a threat

What the article fails to mention is the impact of the recent IPO. It is highly pertinent to include the valuation established after a much-hyped roadshow. Did the author of the article ‘forget’ that Snap Inc just sold 200mm shares (with no voting power) to an array of investors for $17/share. Additionally, a quarter of the new shareholders have a one-year lock-up agreement. To even suggest a timetable where $14/share would be a conceivable offer for Snap would be somewhere in the 4-5 year range and that would be if metrics began deteriorating.

Typically, a company would not likely subject itself to the rigors of taking a company public, especially one with such the high-profile nature of Snap, just to sell itself within 12 months. A high-profile technology company, AppDynamics, did sell itself 48 hours prior to making a debut in January 2017. But this buyout, $3.7bn by Cisco, was a significant premium to the $1.7bn to $1.9bn that the company was potentially being valued at if the deal ended up being priced. Furthermore, to think that Snap, a much higher-profile company in comparison to AppDynamics, would sell itself to Facebook at a discount to the offering price is a theory best described as ‘click-bait’.

However, in the article’s defense, there is no timeline established for when a $14/share bid/buyout would or could happen. But, in our opinion, it is about as far-fetched as seeing the Easter Bunny, Tooth Fairy and Santa Claus show up at your house for dinner tomorrow night.

My guess is that you won’t be needing to cook extra food…and Snap has no chance of being acquired by Facebook for $14/share.