How Goldman Sachs could make $2.8 billion from Facebook

Summary:Goldman Sachs could be in for a bonanza in a Facebook IPO. How does this work?

In my earlier piece I hinted that Goldman Sachs has a vested interest in building a case for a $50 billion valuation for Facebook that has nothing to do with the open market valuation. Larry Dignan thinks this is the pre-cursor to an IPO. Mark Zuckerberg has been quoted as saying that an IPO is not on the cards anytime soon. Peter Thiel, who originally staked $500,000 in Facebook said in September that Facebook would not IPO before 2012.

Regardless of the timeframe, how much does Goldman make on the deal? The answer is simple.

According to Bloomberg, Goldman took the lion's share of the 2009 $923 million IPO fees:

Banks increased fees for initial share sales by 62 percent to 5.63 percent from the lowest level on record, even as the amount that U.S. companies raised from IPOs decreased by almost half to $16.4 billion this year, according to Bloomberg data. While the biggest surge in stocks since the Great Depression revived the IPO market and helped enrich bankers, almost 40 percent of offerings sold by underwriters in the second half of 2009 have left buyers with losses, the data show.

Crunch the numbers: at a $50 billion valuation, with Goldman in the box seat as lead banker to an IPO and at the rates quoted in 2009, then it could pocket $2.8 billion gross in fees. And that's on top of whatever it creams off the $1.5 billion fund it is creating as part of the deal that sees it currently investing $450 million. Assuming an IPO in the next 12 months then by my reckoning, Goldman's 'investment' nets a 6x return.

If Goldman is successful (and remember that the Special Purpose Vehicle covering the $1.5 billion has to get past the SEC first but honestly - do they care?) then what happens to the Twitter's of this world? Does its investors start clamoring for an exit? You bet.

That can only spell one thing: bubble times are here again.

Side note: Does anyone now think Zuckerberg is running Facebook?

Topics: Social Enterprise

About

Dennis Howlett has been providing comment and analysis on enterprise software since 1991 in a variety of European trade and professional journals including CFO Magazine, The Economist and Information Week. Today, apart from being a full time blogger on innovation for professional services organisations, he is a founding member of Enterpri... Full Bio

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