Social networking site Bebo survives as AOL finds a buyer

The deal with Criterion Capital comes just two months after AOL said it was unwilling to put up the "significant investment" needed in Bebo, which was threatened with closure unless a buyer was found.

Bebo was a success in the UK but flopped in the US against competition from Facebook. AOL is likely to have sold it for just a fraction of the purchase price, with reports suggesting the figure was as low as $10m.

AOL refused to comment on the price but said the deal would create a "meaningful tax deduction" – implying a big loss on the disposal.

Tim Armstrong, AOL's chief executive, said: "The deal will allow Bebo's users to remain within the social platform that they know and love, while enabling a new owner to bring new possibilities and experiences to bear."

Bebo launched in 2005 and the sale to AOL – which was then part of Time Warner – netted a major windfall for Michael and Xochi Birch, who reportedly owned about 70 per cent of the firm at the time of the takeover.

As of April, San Francisco-based Bebo had 12.6 million unique users, of which 4.4 million were in the UK.

UK users were responsible for generating well over half of the social networking site's 1.9 billion page impressions a month.

Criterion managing partner Adam Levin said: "The young, highly active user base, revenue history, presence in countries throughout the world and solid technical infrastructure make it an attractive media platform both as a standalone entity and in the context of our broader investment objectives."

Armstrong added: "Criterion are specialists in facilitating growth plans and turnarounds and are well placed to drive Bebo's effort to strengthen its foothold within the highly competitive social networking arena."

In the three months to 31 March, AOL's revenue fell by 23 per cent year-on-year to $664.3m, with net income dropping 58 per cent to $34.7m.