Interpublic making a killing from its Facebook friend

A £5m investment the ad giant apparently made in Facebook in 2006 could be worth 60 times as much now. Hope whoever did that deal gets a pay rise...

by James Taylor
Last Updated: 26 May 2011
Big companies will often take stakes in small up-and-coming businesses, in the hope of gaining a strategic advantage or making a juicy return. But few such investments can have paid off quite as well as the 2006 decision by ad group Interpublic to spend less than $5m buying a small stake in a little-known website called Facebook. Fast forward five years  and, with Facebook valued at as much as £85bn, that little stake could now be worth in excess of $300m. Maybe it should forget about advertising and concentrate on venture capital instead...
According to today's FT, Interpublic reveals in its latest annual report that it occasionally takes stakes in private companies, and 'certain of these investments, the most significant of which is Facebook, have significantly appreciated compared to their cost'. Apparently it hasn't disclosed the exact size of said stake, but the FT reckons it's just under half a per cent. Recent trading on the secondary market (which isn't necessarily a fair reflection of the company's value, since there's much less liquidity) has put Facebook's value at $50bn, and more recently as much as $85bn. So if Interpublic had a 0.4% stake, say, that would be worth somewhere between $200m and $340m. Not a bad return, we're sure you'll agree.
For a group that's had a difficult few years in the recession (along with the entire advertising industry), that's a very nice counter-cyclical boost to its bottom line. Admittedly, as Interpublic apparently points out in the report, there's no guarantee it would be able to sell its stake on anything like these terms; after all, some would argue that anyone who buys Facebook stock at a $85bn valuation is either very brave or very silly. Then again, paying $5m for a small stake in a start-up probably seemed like a risky bet at the time too - and look how that turned out.
And though the deal looks likely to have a huge financial upside for Interpublic, it'd be equally interesting to know whether it gains any discernible strategic advantage from being involved in Facebook from the very early days. The FT says that part of the original deal involved a commitment to spend $10m of its clients' ad budgets on the site. If Facebook does continue to grow its share of the ad market, having five years' expertise of promoting your clients on the site should be more than useful...

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