The Bebo Story — $849 Million Later

Back Story

To grow gorgeous roses, you have to step in mud. This recent project contained lots of mud (lawsuits, allegations of mismanagement and malfeasance, delinquent payroll taxes, etc.) and yet had a very happy ending. It all started when BCC was hired to mediate as Court-Appointed Receiver for Bebo.com, the once-successful social media website. By way of background, Bebo was sold to AOL in 2008 for $850 million. After that sale, however, Bebo’s fortunes declined, and Bebo was then off-loaded for peanuts to two entrepreneurs in 2010. Millions more losses were suffered over the next two years.

The two owners brought in a few additional investors but then came to a rancorous parting with a group of the minority shareholders suing the majority shareholder/operator, alleging mismanagement and other misdeeds. The majority shareholder defendant never responded to the various summons and requests for responses the plaintiffs served, which necessitated broader action by the minority shareholder group.

Receivership Begins

The beleaguered minority shareholder group subsequently won the right to install a Receiver (Burke Capital) to run the business. So in March 2013, we flew to Los Angeles with the directive to take over Bebo’s operations. We did not know what to expect. We could be met with indifference, hostility, or even worse. The last advice from our attorneys was that if we felt threatened, we should just walk away. We were fine until we heard those comments!

With that as backdrop, we told Bebo’s majority shareholder/operator that we would be arriving at 1:00 p.m. at the company’s offices in West L.A. However, we pulled a fast one, and showed up at 10:30 in the morning, and found him in the process of leaving for the day! Thankfully, we were able to intercept the surprised CEO in the hallway, and then get access to the company’s books and records.

We spent a few days at Bebo’s office doing due diligence. We learned many interesting things about how this segment of the online industry worked on a day to day basis, how revenues are actually derived, etc. Bebo is a social networking website that was started around the same time as Facebook. Bebo’s customer base uses it for chatting, games, dating, etc. After a while, of course, Facebook knocked many of its competitors, including Bebo, into the weeds. That said, Bebo still has several million individually registered users, although only a few million are active – which is still a lot in the online space.

A Moment of Inspiration

At the conclusion of our initial review of the state of affairs at the company, we determined that the site had simply been ignored internally, and there were some fairly simple things that could be done to improve the user experience. To add insult to injury, we were paying way too much for our server farm. What was needed was someone with the expertise, money (and interest) to resuscitate Bebo. We immediately thought of Michael and Xochi Birch, prominent San Francisco business people who had become known for their creation of an incubator company for helping startups get on their feet. Conveniently, Michael and Xochi also happened to be the original founders of Bebo, and remained active minority shareholders..

We approached the Birches through Michael’s attorney and pitched the “reimagined Bebo” opportunity. We felt that they could buy the company, add some creativity to juice it up, and, frankly, save it. They were skeptical at first, but then thought it over, and decided to go for it. Because of all the “financial baggage” accumulated by the existing majority shareholder/operator, we at Burke Capital (in conjunction with Los Angeles-based bankruptcy and restructuring law firm Lesnick Prince & Pappas LLP), decided to put the company into a voluntary chapter 11 bankruptcy reorganization case. Fortunately for Bebo, a comprehensive chapter 11 reorganization would allow for an auction of the company’s revenue generating assets, while permitting the successful bidder at any such auction to buy those assets free of overhanging liabilities.

Successful Finale

The auction for Bebo’s business assets was held in Los Angeles in July. Part of our job in the Chapter 11 was to make sure that the company is sold for fair market value. We broadly advertised the business and did a focused domestic and international search for buyers. We got numerous interested parties, several of which attended the auction and made offers. The auction itself was held at the Federal Bankruptcy Court in downtown Los Angeles, and featured some spirited bidding. We were very pleased to see the purchase price hit just over $1 million. Ultimately, the winning bid went to a company controlled by the Birches.
For the Birches this was a manageable sum and they got what they wanted – a clean deal and a chance to revitalize his former company.

At the end of the day, we at Burke Capital are pleased to report another checkmark in the win column, an introduction to Michael and Xochi Birch under very positive circumstances, and some really good press to boot. Plus, we got paid well for our efforts and have some great war stories.

Jim Burke’s kids thought it was really cool that Burke Capital was featured in a web blog called “Tech Crunch”, they said that was really good publicity for us in the the tech world. A rose by any other name.

About Burke Capital Corporation

Burke Capital Corporation is one of the region’s most highly respected catalysts to business prosperity. For over twenty years, Burke Capital Corporation has provided capital, expertise and management to enable significant client performance gains, often in very challenging times. The company is based in Burlingame, California located at 1021 Burlingame Avenue. For more information go to www.burkecapital.net.

To learn more about Burke Capital, please contact Jim Burke at 950.579.5699 or at jmburke@burkecapital.net.

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