Why a $40M Business Sale is nothing to get excited about

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Marketing Client Service ImageThree years ago a fresh-faced Tom Waterhouse and his online betting business, TomWaterhouse.com, exploded into our lounge rooms.  Putting aside questions of ethics, it seemed that Waterhouse had hit on the winning formula for building business valuation: throw cash at your marketing channels – particularly advertising.

A promising start

The online betting business, jointly owned by 32-year-old Waterhouse and other investors, invested heavily in a number of traditional marketing channels.  In April this year, the BRW suggested that Waterhouse spent $15 million to get a seat in Channel Nine’s commentary box during its rugby league coverage and north of $25 million a year building the ‘Tom Waterhouse’ brand.  This investment included a saturation advertising campaign, Facebook and Twitter advertising, online advertising, print advertising, even a TomWaterhouse.com livery tram.

In March, when British bookmaker, Ladbrokes, was first investigating purchasing Waterhouse’s business, it seemed that this investment had paid off: the company was valued between $200million and $300million.

Kick and miss

However, Ladbrokes weren’t willing to put their money where their mouth was and only 4 months later, another British betting giant, William Hill, purchased the business for only $40M in cash and debt.

Despite the fact that $40million is far short of $300million, it still seems like a significant price to pay for a three year old business that had yet to turn a profit.  But when you compare the purchase price with the annual channel and communications budget of $25million (remembering that this is just the channel and communications budget and doesn’t include any other operational expenses) this doesn’t seem like such a great deal for Waterhouse.

Take a look at your business, are your channel investments actually adding to your bottom line or business valuation?  Or are they simply stoking your company’s ego?  Livery tram, anyone…


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