Wednesday, December 18, 2013

Google robotic acquisitions: a cluster of deals

Google's recent acquisition of eight robotics companies  has garnered as much attention as Amazon's futuristic plan for package delivery via drones. Speculation abounds on Google's goals for its robot menagerie -- from delivery droids to elder care assistants. Stephen Colbert quips that Google intends to enslave humanity, and thus Colbert is breeding an Ewok army to counter a forthcoming invasion.

An acquisitions cluster involves a series of company purchases in a highly related sector. This is not the first time Google has bunched deals in a given sector, but this concentration of eight clustered acquisitions in a short time is unprecedented. (A cluster differs from an ecosystem in that ecosystems typically cut across the value chain of an industry, whereas clusters tend to be focused a specific sector.)

True, each of Google's acquisitions has distinctive attributes. For example, Industrial Perception focuses on robotic "sight", Boston Dynamics emphasizes mobility, and Meta stresses humanoid features. But all companies fit cleanly in the robotic sector.

Whatever robotic applications spring forth from this acquisition frenzy, the size of the cluster signals Google is serious about this moonshot initiative.

You can find details about Google and its robotics deals at

Friday, September 20, 2013

Semi-organic growth

One of Google's best acquisitions in its short history was completed in 2003, before the company went public. Google bought Applied Semantics, a developer of semantic text processing and online advertising technology. Applied Semantics' 45-person team became instrumental in building AdSense, a cornerstone of Google's paid advertising platform.

This successful "acqui-hire" imprinted in the minds of Google's senior management a form of corporate development that set the stage for many of Google's M&A transactions. Let's call this corp dev approach semi-organic growth, meaning Google acquires an external team/company and then skillfully attaches that team to a specific internal product area to accelerate the growth of that product.

For details on Google's use of semi-organic growth, as well as other key aspects of Google's M&A program, see my lecture given at Darden/University of Virgina --

Monday, March 11, 2013

Goodwill -- here today gone tomorrow?

Goodwill is a big number on the balance sheets of many technology companies. Google has $10.5B of goodwill, Microsoft 14.7B, Cisco $17.0B, and Hewlett Packard $30.9B.

How does this asset arise? Contrary to how it sounds, goodwill is not booked as a result of strong brands, excellent customer relations or talented management admired by shareholders. As much as a business might like to claim its "favor" with customers or other stakeholders as a asset, it can't be done.

Goodwill results from acquisitions and acquisitions only. Goodwill arises when an acquirer pays more than the fair market value of acquired net identifiable assets. For example when Google bought YouTube in 2006 it allocated over $1.1B to goodwill, far more than the $.1B allocated to trademarks and customer contracts.

For a number of technology companies goodwill is much larger than other major balance sheet items such as property, plant and equipment (PP&E). Cisco's goodwill it currently about 500% of its PP&E; HP's is 265%; Microsoft's is 169%.

For other tech companies, goodwill is a relatively minor asset. For low-acquisitive Apple, goodwill is only 9% of PP&E. And Samsung's goodwill is less than 1% of its PP&E.

Goodwill must be tested for impairment at least once/year, and impairment charges reduce operating income. For example, last November HP announced it was taking a $5B goodwill impairment charge related to its Autonomy acquisition. And last July, Microsoft announced its was taking a $6.2B charge to write down goodwill relating its aQuantive online-advertising acquisition.

Google, although extremely acquisitive, has never taken a charge for goodwill impairment. This hardly means that all Google acquisitions have been successful. Goodwill impairment is typically analyzed at the operating segment level, and success can continue to occur within a segment even if some deals within that segment have failed.


Thursday, July 12, 2012

Apple Acquisitions

Apple acquisitions since 2001
By my count, to date Apple has made 20 company acquisitions since 2001. Apple is somewhat secretive about its M&A activity, so some digging is required to get to 20. Capital IQ (an authoritative deal source) lists only 16 company acquisitions for Apple during this period.

Apple has not been a particularly acquisitive company over this 12 year period. In contrast, Google acquired about twice as many companies in the year 2011 alone.

The infographic on the right depicts these 20 acquisitions, clustering the deals by market segment. You can view much more detail at Apple acquisitions since 2001.

Three clusters stand out: 1) Media application software (Spruce, EMAGIC, Silicon Color, Proximity and Redmatica). The most recent deal (Redmatica) develops applications used for sampling and editing audio files and for managing audio libraries; 2) Semiconductors (P.A. Semi, Intrinsity and Anobit). The most recent deal (Anobit) makes a key component that improves the performance of NAND flash memory chips, which are used in products such as iPhones, iPads, and iPods; 3) Mapping, imaging, drawing (Placebase, Poly9, Imsense, C3 Technologies). The most recent deal (C3) is a developer of three-dimensional mapping technology and now operates as the "Sputnik" division of Apple. This latter cluster of deals was particularly important as Apple moved away from using Google Maps in its new iOS 6.

Curiously, Redmatica (Italy), Anobit (Israel), and C3 Technologies (Sweden) were all headquartered outside of the US. Apple's M&A reach clearly has a global perspective.

Sunday, May 20, 2012

M&A Ecosystem Synergy: Much More than Sum of Parts

We’ve heard about M&A synergy, the notion (all too often fanciful) that the value of combined enterprises will exceed the sum of their individual values. Revenue synergies are anticipated top-line enhancements that will come from use of the acquirer’s superior distribution capability, or cross-selling of companies’ products, or effective integration across an industry value chain. Or, or, or… The list of possible revenue synergies is long.  Sometimes such synergies are real; often they are optimistically imaginative.

Cost synergies (such as head-count reduction from redundant overhead) are more in control of the acquirer. And these synergies tend to be more believable by Wall Street.

In any case, synergy can be represented by the equation V(A + T) > V(A) + V(T), where V(A) is the value of the Acquirer and V(T) is the value of the Target.

But consider what can be a potentially richer form of M&A synergy. Research findings suggest that initiation of a series of acquisitions as part of a strategic M&A program is associated with value creation for buyers. I believe this is especially true where ecosystem synergy can be realized.
Ecosystem synergy exists where target acquisitions have synergy with each other and not only with the acquirer. In other words, V(A + T1+ T2) > V(A+T1) + V(A+T2), where A stands for the Acquirer, and T1 and T2 stand for distinct Targets that have synergies with each other in addition to potential synergies with Acquirer.

Consider an example. Google has engaged in a series of advertising-related acquisitions that have helped the company cover the entire value chain of advertising. These acquisitions include Invite Media, DoubleClick, Admeld, and AdMob.

In the Internet world, ads typically start with the advertiser and go through an ad agency to a demand side platform (Invite Media), then to ad exchange (DoubleClick), then to supply side platform (Admeld), finally reaching users through services such as YouTube. In addition, the AdMob acquisition gives Google one of the largest mobile advertising networks. Google plans to integrate the AdMob network with DoubleClick's ad tools to ultimately operate a single platform across multiple devices. This is an excellent example of ecosystem synergy -- where target acquisitions enjoy synergy with each other and not only with the acquirer.

For more information on this constellation of deals, see

Research support provided by Debadutta Bhattacharyya and Ahreum Hong.

Thursday, May 17, 2012

Starbucks M&A in China: from Forbidden to Far and Wide

Starbucks entered China in 1999 and quickly opened a café within the Forbidden City. Chinese were horrified at the image of a U.S. coffee capitalist encroaching on traditional Chinese culture. The site became a lightning rod for controversy and eventually closed.

But Starbucks was sharpening its China vision, focusing on the development of goodwill, brand awareness and strong government relations. Consider a couple of recent moves. In February 2012, Starbucks established a joint venture with the Ai Ni Group, one of Yunnan Province’s most established agricultural companies and coffee operators. The goal is to support local farmers and help them enhance the quality of coffee that can be served within China. And in April, China Starbucks University was created, aiming to “elevate” the company’s China employees, with the noble goal of making Starbucks an employer of choice.
Starbucks intends to make China its second largest market (after the U.S.) by 2014 and plans over 1500 cafés in the country by 2015. There are at present about 600 Starbucks stores in China. The company is currently adding a store about every four days and plans to accelerate this pace.
Given this growth goal, corporate business development is changing in China. Originally, Starbucks entered China largely through minority share licensing agreements or joint ventures with quality corporate partners. Now the company is buying out partners such as Maxim Caterers in areas where Starbucks wants to accelerate growth. Starbucks will have full ownership of cafés in the provinces of Guangdong, Hainan, Sichuan, Shaanxi and Hubei, as well as the province-level municipality of Chongqing. Central, South and Western China is coming under full control of the company.
Starbucks intends to move from forbidden to far and wide.
Research assistance provided by Gaurav Vij

Saturday, April 7, 2012

Google's Major Acquisitions

Google's has done over 100 acquisitions over the past ten years. So which deals should we classify as significant? The largest deal by far (Motorola Mobility) involves consideration of about $12.5 billion. (This deal has been approved by U.S and EU antitrust authorities, but is still pending regulatory clearance is China, Taiwan and Israel.) The acquisition of Motorola Mobility is expected to substantially augment Google’s thin patent portfolio of about 2,000 patents, increasing it to 20,000+.

But size of transaction alone does not determine significance. Consider Google's 2005 purchase of Android, rumored to cost a mere $50 million. Android has driven quick adoption of Google's mobile platform, which has augured well for company's broader ad-based business model.

For our take on Google's most significant acquisitions, see the infographic at This visual is destined for change as Google's corporate acquisition machine continues its march forward.