Paper trade

Contact: Brenon Daly

To get a sense of just how tough the M&A environment is right now, consider LookSmart’s divestiture Monday of online bookmarking property Furl. When we last spoke with the company a year ago, it was hoping to pocket a few million dollars for Furl. Instead, it ended up trading it for paper.

In return for giving up ownership of Furl, LookSmart scored an undisclosed slice of equity in privately held Diigo. (We would estimate that LookSmart picked up maybe 10-15% of Diigo, which offers online bookmarking and annotation services.) The outcome may not be as lucrative – or as liquid – as LookSmart had hoped, but at least it didn’t initially overpay for Furl. LookSmart handed over less than $1m in stock for the startup in the September 2004 acquisition.

The planned sale of Furl ran into trouble as some of the marquee social bookmarking deals foundered as the market became overcrowded. (We would point to Yahoo’s purchase of for an estimated $35m in December 2005 and eBay’s $75m acquisition of StumbleUpon in May 2007 as examples of deals that underperformed.) But mostly, the planned divestiture ran into a grizzly bear of a market. Over the past year, LookSmart itself has lost three-quarters of its market capitalization and is now valued on the Nasdaq at just half of the cash that it holds in the bank.

LookSmart slims

Divestiture Announced Market Deal value
Furl March 2009 Social bookmarking Traded for undisclosed amount of equity in privately held Diigo
Net Nanny January 2007 Web filtering Not disclosed
FindArticles November 2007 Information retrieval $20.5m

Source: The 451 M&A KnowledgeBase