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Groupon acquisition rumors swirl

November 30, 2010|By Wailin Wong

CHICAGO — Groupon Inc. isn't just about daily online deals for restaurants and spas. These days, the rising star is generating a rumor a day about which marquee technology company is courting the Chicago-based startup.

Groupon has been at the center of speculation about an acquisition for weeks, with Internet giants eBay, Yahoo, Amazon and Google among possible buyers. Monday's rumor du jour was that Google had agreed to buy the deal-a-day company for $2.5 billion. This amount would fall below the north-of-$3-billion valuation that Groupon is reportedly seeking, but the very prospect of a Google-Groupon deal was enough to send tongues wagging across the Web.

A Google spokesman said the company does not comment on rumor and speculation. A Groupon spokeswoman declined to comment.

Just two years ago, Groupon was a newly hatched side project of The Point, a Web site created by Northwestern University alum Andrew Mason to organize collective action around social causes. Mason eventually made Groupon his primary venture, and the company is now credited with pioneering the group-buying business model, which combines social media, online advertising and e-commerce.

This lucrative mix is what has piqued the interest of potential suitors. Groupon's latest investment round in April put its valuation at $1.3 billion, and the company is expected to rake in $500 million in revenue this year, according to published reports.

"The daily deal space is very hot, which also raises a lot of (Groupon's) competitors as potential targets," said Sucharita Mulpuru, principal analyst at Forrester Research. "They're considered very fast-growing companies. They're profitable business models. They've been getting a lot of traction and their sales are growing very rapidly. They're on track to be billion-dollar businesses."

LivingSocial, a group buying company based in Washington, D.C., has raised venture capital and expanded to Europe. New York-based BuyWithMe also has gotten funding and hired former Chicagoan and TicketsNow Chief Executive Cheryl Rosner as its CEO.

Industry observers say Groupon's ability to straddle the worlds of online retail and brick-and-mortar commerce makes it attractive to a range of companies.

Mountain View, Calif.-based Google, already a major force in search and Web advertising, has been pushing into the "local" space with products such as Google Places, and Groupon could complement that lineup. Seattle-based Amazon is a retail bellwether, but its focus has been on e-commerce over a wide geography, not local businesses.

In the group-buying model, "the cash is collected from the consumer upfront and it's a confirmed purchase," said Dan Hess, co-founder and chief executive of Local Offer Network, a Chicago-based company that aggregates daily deals from more than 150 sites in four countries. "It essentially takes e-commerce closer to the local storefront than any model to date."

Local Offer Network is a partner of Metromix, a joint venture between Gannett Co. and Tribune Co., which owns this newspaper. Hess is a former Tribune Interactive executive.

Groupon's co-founder has said the company is keeping its options open.

"People have been making us a series of offers that range from strategic partnerships to investments in the company to much larger deals," Eric Lefkofsky told the Tribune earlier this month. "We're happy to stay an independent company forever, but we also are -- how do I put this? -- open-minded to any strategic partnership that makes sense."

The last two months have brought high-profile partnerships with some of the same companies rumored to be interested buyers. In October, Groupon teamed up with eBay for a program in which the online auctioneer features daily deals and allows members of its rewards program to earn perks through Groupon purchases. More recently, Yahoo launched a "Local Offers" program that aggregates deals from Groupon and more than a dozen other companies.

Analysts say Groupon is an attractive target because it was able to maintain its early lead in the daily deal space and get to a significant scale. But the large number of copycat sites underscores the relative ease with which other startups have been able to claim their piece of the market.

An established technology company also could design its own daily deal service instead of paying a lofty sum for Groupon.

Facebook, for example, launched a "Deals" feature this month, with local businesses offering discounts to consumers who "check in" via the social networking platform. Mulpuru noted that Facebook is "a company that's conspicuously absent from the discussions of who's buying (Groupon)."

Lou Kerner, an analyst at Wedbush Securities, said Facebook's foray into local deals may be the driving force behind Google's reported interest in Groupon because the two companies are locked in a "battle for Web supremacy."

"Facebook is building a very significant presence in this deal space, so Google (wants) to have a presence in the deal space as well," Kerner said. "Increasingly, this fight between Google and Facebook is going to be about the social graph, the information about who people are connected to. … What deals you buy is a very valuable part of that social graph. Whoever acquires Groupon is going to have that as well."

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