Reported overnight – Yahoo is in the process of buying blogging service Tumblr for $US1.1 billion cash, – based on the premise it needs to provide a much-needed social media platform to reach a younger generation of users and breathe new life into its ailing brand.

The deal, announced on Monday, is a bold bet by Yahoo Chief Executive Marissa Mayer to revitalize the company by co-opting a Web property with strong visitor traffic but little revenue.

The combination of Yahoo and Tumblr creates an online powerhouse with roughly one billion users, which will draw in more advertisers and help Yahoo keep visitors on its properties for longer periods of time, Mayer told Reuters in an interview.

“Tumblr in terms of users and traffic is an immediate growth story for us,” she said.

Interestingly when we look further into the deal the numbers are amazing – Whilst Tumblr does not publish it’s financial results – media reports the revenue at $13M ( not earnings but revenue ! ) and the price of $1.1billion is an 84 times multiple on revenues – if it was 84 times EBIT it would be an amazing deal – at 84 times revenue it is a massive strategic premium.

Yahoo is one of several companies that have paid considerable premiums for acquisitions in recent years – Facebook bought photo site Instagram for $US1 billion last year and in 2006, Google paid $US1.6 billion for YouTube.

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.