Yahoo! – David Sambur (Apollo)

“The capital structure and the business plan relates to the businesses. Yahoo is many different businesses. We had a view that we could maximize the debt proceeds by leaving some businesses that lost money, namely the advertising technology business, outside of the credit box where we were getting the loan. We didn't get a significantly large loan to finance the deal. Banks liked that because they were loaning against the cash flowing assets.”— David Sambur

Business & Entrepreneurship · Strategy & Decision Making · Economics & Markets

DUR_ENDURING

Debt on cash flow, sell non-core outside debt box

“Between signing and closing, the deal team announced a deal to sell the Yahoo Japan trademark to a public company in Japan called Z Holdings for a billion six. And the royalty stream on that was not a significant contributor to EBITDA. An extremely accretive transaction. And then domain names, IP addresses, real estate, data centers, all were sold and within the first year of owning the deal it was about a $2 billion equity check. We returned almost all of our equity.”— David Sambur

Business & Entrepreneurship · Strategy & Decision Making

DUR_ENDURING

Returned all equity in year one via asset sales

“Yahoo has a very large user base. Monetizes at about 3 and a half, $4 per user per annum. Very low monetization rate. Google and Facebook both monetize above 30, $35 per annum respectively. It would be foolhardy to think we're going to get there entirely through advertising. We have a big, large, loyal, sticky user base in verticals like finance and sports. The way to improve monetization is by leveraging the user base for products that they want and vertically integrating.”— David Sambur

Business & Entrepreneurship · Strategy & Decision Making

DUR_ENDURING

10x monetization gap, solve via vertical integration

“Everything we do at Apollo, it's about don't lose money. If you could create a floor under your equity in every deal and then your deals are all basically average deals, even above average portfolio on a repeatable basis without taking a lot of risk. That's what we do. I think in this deal it was off the charts successful in terms of us monetizing and returning our equity very quickly, but the idea was built into the original business plan of the investment, which is structure the debt around th...”— David Sambur

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Create floor on equity, asymmetric upside

“We wound up buying Yahoo and AOL for about $5 billion and that works out to about five times EBITDA. That's a low multiple, that's dramatically below the average multiple paid for LBOs and the reason why it was that price is because I think there was a lot of uncertainty around the business from most practitioners in the market. Most people thought that it was a declining business. It's not. I think the scale and complexity also impacted the value.”— David Sambur

Business & Entrepreneurship · Strategy & Decision Making · Psychology & Behavior

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Other sponsor walked away: validation of opportunity

“The business is four times as profitable now as it was in 2019 and it's almost 100% up on our underwriting case. So 2022 EBITDA was almost 100% higher than what we underwrote '22 when we bought the business. The business doesn't have a lot of CapEx because it's an online business.”— David Sambur

Business & Entrepreneurship · Strategy & Decision Making · Economics & Markets

DUR_CONTEXTUAL

Rising CAC plus funding drought creates M&A opportunity

“The best way to change the culture of the team is change the coach. The most critical thing was Reed bringing Jim in. Jim is amazing. People want to work for good people and good CEOs get followership. Within a nine-month period, he recruited new heads for almost every single one of our operating businesses. They bring in their people and before you know it, you wake up a year and a half later and the first three layers of the organization have turned over and they've been dramatically upgraded.”— David Sambur

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Change CEO, cascade follows in 18 months

“One of our strategies in our private equity business is to focus on very large complicated corporate carve out transactions, because by definition their complexity and their scale limits the buyer universe and theoretically there's ways for us to capture value. Plus they're not zero-sum propositions. We actually wanted to partner with Verizon and they rolled over a stake in the equity of the deal, which I think they're happy to be our partners with and there's a lot of ways to create win-wins in...”— David Sambur

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Complexity limits buyers, creates win-win structure

“Our style today is essentially from a big picture the same as the style it was initially, and I think it's a very different style than many other practitioners in the industry. What we like to say is purchase price matters, which sounds trite because the cardinal rule of investing is supposed to be buy low and sell high.”— David Sambur

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Buy complexity, sell simplicity

“Being open-minded and not making snap judgments. I think those that made snap judgments missed this opportunity. I think it's another reminder that you need to do the work and not just listen to what other people are saying. Another lesson was great management teams really moved the needle. We underwrote Yahoo along the lines of other deals. 20% plus rate of return, we'll make let's say two and a half to three times our money and that could have been accomplished with a lesser management team.”— David Sambur

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Management turns 2.5x deal into 10x deal

“The beauty of an online business is the ability to scale quickly is unrivaled compared to other businesses. If we want to scale The Venetian in Las Vegas, we have to build the new hotel tower. That takes a lot of capital. If you want to scale the search business, if you have the right product, yes it requires good product investment and a good team.”— David Sambur

Business & Entrepreneurship · Economics & Markets

DUR_ENDURING

Digital scales fast, low capital, high optionality

“In 2017, Yahoo was still a public company. They owned Yahoo and then they owned a 40% stake in Alibaba. Yahoo had come under activist assault to spin off the Alibaba stake and unlock value for shareholders. They were left with a very small company versus the size of the Alibaba stake, which was massively larger than the owned and operating businesses. We looked at buying the company in 2017.”— David Sambur

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Recognized synergy buyer would win, walked away

“Yahoo is a collection of online assets. We call them the O&O businesses: mail, homepage, search, finance and sports that have large audiences, about 900 million monthly active users still across all of our properties. The main revenue generating business is mail, homepage, search, finance and sports. It's over 5 billion in revenue overall for those businesses and the profitability is over a billion.”— David Sambur

Business & Entrepreneurship · Technology & Engineering

DUR_CONTEXTUAL

900M users, 5B revenue, first-party data advantage