Goldman Sachs Facebook deal sets bank up to manage possible IPO

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A Goldman Sachs Facebook investment of $450 million was the biggest news on Wall Street Monday. The Goldman Sachs Facebook deal, plus an additional $50 million investment from a Russian firm, has given Facebook an implied market value of $50 billion. Goldman’s investment makes it a front runner to manage a Facebook IPO that most analysts consider imminent.

The Goldman Sachs Facebook deal

The Goldman Sachs investment gives the social networking phenom more implied market value than eBay, Yahoo and Time Warner. Digital Sky Technologies, a Russian investment firm, added $50 million to its stake in Facebook. In 2009 DST paid $200 million for a 2 percent stake in Facebook, and by buying shares from Facebook employees is reported to have increased its stake to about 10 percent. Facebook, still a private company, doesn’t disclose finances, but it’s apparent the company has no need to borrow money.  Facebook’s 2010 revenues were reported to be approaching $2 billion. The social networking site overtook Google as the most visited website in the U.S. last year.

Goldman hustles to outrun Volker rule

The Facebook investment has provided analysts with clues about Goldman Sachs’ private equity strategy in the wake of the Dodd-Frank financial reform bill. The “Volker rule” is part of the financial reform that bill limits the investments Wall Street banks can make with their own money. Financial reform legislation gives the banks several years to comply with the new regulations. The Goldman Sachs Facebook deal indicates that the firm is taking advantage of that grace period to make lucrative private equity deals with its $900 billion balance sheet. Goldman is also recruiting wealthy clients to pour up to $1.5 billion into Facebook.

Goldman eyes coveted Facebook IPO

Facebook is currently being investigated by the Securities and Exchange Commission for private trading of the company’s shares on the secondary market. Last year Facebook cracked down on employees who were selling their shares as the company’s implied value skyrocketed. SEC rules limit private companies to 499 shareholders. When Facebook hits 500 shareholders it must register its shares and make its finances public. The Goldman Sachs Facebook deal could force Facebook into an IPO. As a shareholder in Facebook, Goldman is now positioned to underwrite a Facebook IPO, which would generate huge fees for the bank and a financial windfall for its clients.


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