Microsoft to cast Razorfish off

Razorfish was one of those iconic dotcom names, post dotcrash it was absorbed by what became aQuantive and then Microsoft - but now Microsoft wants to sell it off, as the FT notes:

Microsoft acquired the agency, formerly called Avenue A Razorfish, as part of its $6bn takeover of aQuantive in 2007.

One analyst valued Razorfish at $600m-$700m, based on sales of about $400m last year and profit margins for similar businesses of 12-13 per cent.

The analyst said: “Much more than that would be overpaying”, adding that even in digital marketing, valuations had fallen since last year, when Advertising Age trade magazine reported a valuation of $800m

Issue is the fall in online Advertising revenue growth. Publicis is seen as one potential acquirer as its clearly looking at a roolup/consolidation play:

Maurice Lévy, Publicis chief executive, said funds from a refinancing this month could be used for acquisitions, particularly in digital and emerging markets, which are performing better than traditional advertising in the US and Europe.

If we assume 10 years cashflow at 13% margin and an average cost of capital of 10%, and that growth equals inflation, then $700m is about a 2x valuation of the free cash flow. I think that 2x will be a tough ask in the current market.

What therefore does it say about Microsoft, that they are looking to sell at such a poor time?