The Missed Red Flags on Groupon
This summer, Lloyd Blankfein, the chief executive of Goldman Sachs, flew to Chicago to personally pitch his firm to underwrite what was supposed to be the hottest initial public offering of the year: Groupon, the fledgling online coupon company that was being valued at around $30 billion.
Context & Ripple Effects
Groupon's path to a roughly $30 billion valuation has been contested all year. In April 2011 it settled on Goldman Sachs and Morgan Stanley to lead its IPO, and by June an independent analysis was already telling investors to pass on the deal outright. DealBook's piece lands between those bookends and asks why the warning signs did not slow the machine.
The most concrete red flag came in August, when coverage flagged that Groupon was running low on cash even as its bankers prepared the offering. Against that backdrop, DealBook reports that Lloyd Blankfein personally flew to Chicago to pitch Goldman for the mandate — an unconfirmed detail, but one that frames how hard the Street chased this deal.
First-order effects
- Goldman Sachs and Morgan Stanley now carry the reputational risk of shepherding a deal whose accounting questions and cash position were flagged publicly months before pricing.
- Groupon enters its roadshow with skeptics already on record — the June 'pass' call and the August cash warning give institutional buyers ready-made reasons to discount the $30 billion framing.
Second-order effects
- Competing daily-deal players and other late-stage consumer internet companies face tougher underwriter diligence and more conservative valuations, since Groupon has become the test case for what banks will vouch for.
- Merchants and advertisers weighing daily-deal spend get a public ledger of doubts about the model's economics, shifting negotiating leverage toward the buyer side of those deals.
Third-order effects
- If the pattern holds, pre-IPO tech companies will face pressure to reconcile promotional 'adjusted' metrics with standard P&L disclosure before listing — the gap between what private-market decks claim and what filings must show becomes the battleground.
- A high-profile stumble here would hand regulators and plaintiffs a template for scrutinizing how underwriters vet hot deals, raising the cost of chasing mandates at any price.
The trend: The 2011 vintage of consumer-internet IPOs is turning into a stress test of whether Wall Street's diligence can keep pace with private-market hype cycles.