tag:blogger.com,1999:blog-86610322471353831202024-03-05T07:40:21.995-08:00M&A ProfessorGeorge T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.comBlogger35125tag:blogger.com,1999:blog-8661032247135383120.post-21080592669203723932016-07-27T17:38:00.000-07:002016-07-27T17:38:03.968-07:00M&A Missteps and Yahoo's decline<div dir="ltr" style="text-align: left;" trbidi="on">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiihNA_0DHxiAFezfbvZC7YFViyCiHQPGcpgS2a6_VG8y1-HU_wCHEKqXSgofAYArVdlsEkaorLeBUVFGWjrUCZYSi6bIW1Qlpe99snM2fegyqSd4MqoSfZ5Da-BwnciGlz1hEm9EKZ1qw/s1600/missteps.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="114" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiihNA_0DHxiAFezfbvZC7YFViyCiHQPGcpgS2a6_VG8y1-HU_wCHEKqXSgofAYArVdlsEkaorLeBUVFGWjrUCZYSi6bIW1Qlpe99snM2fegyqSd4MqoSfZ5Da-BwnciGlz1hEm9EKZ1qw/s200/missteps.png" width="200" /></a>While companies such as Google have built significant value as result of a well-considered mergers and acquisitions strategy, Yahoo seemed to squander value. What role did merger-and-acquisition missteps play in Yahoo’s slow death?<br />
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<a href="http://goo.gl/mrtw0L" target="_blank">http://goo.gl/mrtw0L</a></div>
George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-2829188299028976622016-06-16T09:56:00.000-07:002016-06-16T09:58:20.146-07:00Can Microsoft Lock-In LinkedIn Value?<div dir="ltr" style="text-align: left;" trbidi="on">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5YniEcjvK6OFsARZU3-dB5z0sN761yHfUkPh_StnP3Kzl-Uad2md-afpLIZd9zs5McRnJ9QEy8nJU270IqeUqWorF_R2HqfoMjhwW8Y3_7IgxzF0itvyghvh6EOWvqJEo6PADtoPqkiw/s1600/MsftLinkedIn1.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="67" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5YniEcjvK6OFsARZU3-dB5z0sN761yHfUkPh_StnP3Kzl-Uad2md-afpLIZd9zs5McRnJ9QEy8nJU270IqeUqWorF_R2HqfoMjhwW8Y3_7IgxzF0itvyghvh6EOWvqJEo6PADtoPqkiw/s200/MsftLinkedIn1.png" width="200" /></a>For Microsoft’s acquisition of LinkedIn to be successful,
integration not only must establish an appropriate starting point
(preservation). But even more important is determining the path to the desired
objectives and speed on the integration path to symbiosis and realization of
revenue synergy.</div>
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See my take at <a href="http://www.zocalopublicsquare.org/2016/06/16/does-microsofts-linkedin-deal-have-a-shot-at-success/ideas/nexus/" target="_blank">http://www.zocalopublicsquare.org/2016/06/16/does-microsofts-linkedin-deal-have-a-shot-at-success/ideas/nexus/</a></div>
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George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com1tag:blogger.com,1999:blog-8661032247135383120.post-53121406413656375452015-08-14T10:30:00.000-07:002015-08-14T10:30:52.212-07:00Is Google/Alphabet the next Berkshire Hathaway?<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfgDKewS-ljZvUauGpbRlOjpdmdkf9pC0KGn6sdk9ONvTlfBgcoNrDiRJL35o5WYRsELV7g7QcMrUL5SNV5xxEAqzjPpytMBdHqrVXySh80ltPgju1Jkl4TC6DPaxOLOz7RZ3dpftMQ5w/s1600/PageBuffett.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="103" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfgDKewS-ljZvUauGpbRlOjpdmdkf9pC0KGn6sdk9ONvTlfBgcoNrDiRJL35o5WYRsELV7g7QcMrUL5SNV5xxEAqzjPpytMBdHqrVXySh80ltPgju1Jkl4TC6DPaxOLOz7RZ3dpftMQ5w/s320/PageBuffett.jpg" width="320" /></a>Will Alphabet (formerly Google) become the Berkshire Hathaway of the 21st century? While some have viewed the comparison as <i>silly</i>, the question deserves further analysis. After all, Larry Page has often expressed his admiration for Berkshire's holding company structure.<br />
<br />
Reasonable people will differ in their opinions about the validity of this comparison. While others may concentrate on differences, my emphasis will be on similarities. I'll focus on the M&A activities of the two companies.<br />
<br />
<b>Role of M&A in building the companies</b><br />
Both companies have been voracious acquirers. Since 2010, Berkshire has purchased some 15 companies, while Google has acquired a whopping 125. Of course, many of Google's targets have been small <i>acqui-hire</i>s, whereas Berkshire's typical deal is elephant-sized. Indeed, in his 2014 annual letter, Buffett states that he is interested in companies with at least $75 million in pre-tax earnings. Most of Google's acquisitions are far, far away from that number in revenue.<br />
<br />
While Buffett has built Berkshire through inorganic growth coming from established companies, Page has developed Google largely through <i>semi-organic</i> growth, which blends existing internal capabilities with acquired external technological talent and resources from developing ventures.<br />
<br />
But both companies have become M&A masters, nurturing this form of corporate development into a <i>core strategic capability</i>.<br />
<br />
<b>Cash is the fuel for M&A</b><br />
<b><br /></b>
For both Berkshire and Google, cash generated from highly successful core operations has been the fuel for M&A. For Berkshire, the cash float from insurance has been a major support. For Google, the fuel has come from rapidly growing high-margin advertising revenue.<br />
<br />
Both companies have shunned the use of stock in acquisitions. Buffett has famously declared that he and Charlie Munger would rather prepare for a colonoscopy that use Berkshire stock in a transaction. There have been few exceptions, with Burlington Northern being prominent. Google has used stock in only four major acquisitions, Applied Semantics, YouTube, On2, and AdMob.<br />
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<b>M&A integration styles</b><br />
<b><br /></b>
Berkshire and Google are both obsessed with perfecting M&A integration. For Berkshire, this has largely meant becoming excellent at the art of <i>preservation</i>, allowing great management to continue running companies post-acquisition. For Google, integration has become an artful science with the goal of achieving an<i> alchemic</i> blend of existing and newly acquired talent and technology.<br />
<b><br /></b>
Bottom line on Alphabet mirroring Berkshire Hathaway? Page states that Alphabet can be parsed into alpha-bet, with alpha signaling returns above benchmark. While Page has not emphasized the "bet" piece of the parse, it's clear that what Alphabet is attempting is riskier than what Berkshire does.<br />
<br />
It's taken Berkshire Hathaway about 50 years to grow into a $350 billion market cap company. Google has reached $450 billion mark in some 15 years.<br />
<br />
I like the alpha bet that Alphabet will become the world's first trillion dollar market cap company over the next five years.<br />
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George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-48956121607609290762015-07-26T11:54:00.002-07:002015-07-27T14:17:59.615-07:00Driverless cars as a service: $16B+ for Google?<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcEQO_TG5StK33CKYXLD760gN-iIXhHxyDKeX21GAWBHY1EvGCmHYZjJ_s6okrGx_LnIM8qba0UiCDzRNdwJqYcwJNFKckkVThm6VbSNbf5otC-jpfGn0BSc_JxRKVZeWqxY4c-Ad0nIw/s1600/DriverLess.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="95" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcEQO_TG5StK33CKYXLD760gN-iIXhHxyDKeX21GAWBHY1EvGCmHYZjJ_s6okrGx_LnIM8qba0UiCDzRNdwJqYcwJNFKckkVThm6VbSNbf5otC-jpfGn0BSc_JxRKVZeWqxY4c-Ad0nIw/s200/DriverLess.png" width="200" /></a>This past Friday four UCLA Anderson EDGE student teams competed in a case competition involving the future of autonomous vehicles (AVs). Teams were assigned to Google, Mercedes-Benz, Tesla, or Uber and were tasked with how each company should innovate in order to enhance its position in the battleground for the future of the automobile.<br />
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The Google team won, recommending that Google should enter the AVaaS (autonomous vehicles as a service) market. The team estimated that this initiative (which they code named GOOSE) could yield $16 billion in direct, transportation-related annual revenue for Google starting in the year 2020. The team assumed pricing for on-demand car services would fall by 50%, given that the "driver dude" would no longer be needed. (Of course, this analysis assumed that regulatory and other issues can be resolved.) In addition, the team estimated that Google could earn up to $7 billion in additional advertising related to this service.<br />
<br />
The team argued that Google should "go to war" against Uber and become the leader in next-generation on-demand vehicle services. This possibility of this battle has been widely reported on in the press. For example, in February, Business Week reported that Google was developing its own Uber competitor. Google was coy about its future plans, tweeting "we think you will find that Uber and Lyft work quite well. We use them all the time."<br />
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In 2013, Google Ventures (GV) invested $258 million in Uber at a reported post-money valuation of $3.8 billion. Since GV operates largely independently of Google with a prime directive of generating capital gains, it's not unheard of for GV to invest in potential competitors of its parent.<br />
<br />
Uber, given the possibility of having to go head-to-head with Google, has not stood still. In March, Uber acquired DeCarta, a map-tech company. Then in May, Uber lured 40+ robotics researchers away from Carnegie Mellon University to significantly enhance the capabilities of its own robotics research center in Pittsburgh.<br />
<br />
If the EDGE team is correct in estimating this market opportunity for Google, fasten your driverless seat belts.</div>
George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-37496297750819201552015-07-07T15:28:00.000-07:002015-07-12T10:06:51.468-07:00Will Twitter's acquisitions in 2015 turn the company?<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6-E6JF5RSlBuiRKC1nlw5lb07jIvEOKKfjMqJTlRxDAR1MRi7IoOYZ0vzVacuDL3NutIoDg1vsSdXTZFrupGSpRRSaoJ9hk7ZWBXwJmSGS5O3tLsEcWi91Fw-lrz4466AdmnfaDmy_TM/s1600/Twitter6.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="133" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6-E6JF5RSlBuiRKC1nlw5lb07jIvEOKKfjMqJTlRxDAR1MRi7IoOYZ0vzVacuDL3NutIoDg1vsSdXTZFrupGSpRRSaoJ9hk7ZWBXwJmSGS5O3tLsEcWi91Fw-lrz4466AdmnfaDmy_TM/s200/Twitter6.jpg" width="200" /></a>Twitter may be changing its CEO, but the company's M&A machine has certainly not been stuck in neutral. Our <a href="http://www.trivergence.com/market.asp?MarketID=4208" target="_blank"><span style="color: blue;">infographic</span> </a>depicts six acquisitions the company has made during the first half of 2015.<br />
<br />
Overall, Twitter's acquisitions are continuing to move away from acquiring
companies that build the core social network to companies that support
monetization efforts. Consider some examples.<br />
<ul>
<li>In January, Twitter acquired Periscope, which allows users to upload
live video wherever they are and broadcast it for followers to watch.
The consideration was estimated at less than $100 million in cash and stock, but
skewed towards cash. The acquisition reflects Twitter’s move to bolster its video
capabilities. Adding the ability to stream live video on Twitter capitalizes on the company’s
strengths as a real-time broadcast service. This fall, Twitter plans to launch Project Lightning, which will provide special live event coverage for both Twitter users and non-users.</li>
<li>In April, Twitter acquired TellApart, which helps retailers leverage data by personalizing the customer experience and drive omni-channel
commerce. According to an SEC filing the consideration was $533 million in stock. TellApart's integrated suite of marketing solutions has allowed marketers to deliver
personalized messages in real-time across platforms such as display ads,
Facebook, and email.</li>
<li>In June, Twitter acquired Whetlab, which develops technologies for
machine learning, a branch of artificial intelligence that utilizes algorithms
to detect patterns in big data and to make recommendations and predictions.
Possible uses of Whetlab technology by Twitter include: 1) improving a user's
tweet timeline; 2) enhancing the company's ability to target ads; 3) licensing data. While Google has information about user's search and Facebook has
information about what people are doing, Twitter's cache of data is distinctive
in capturing what "influencers" are thinking. Whetlab could help Twitter pattern
such data into trends that are of high value to both consumers and
businesses.</li>
</ul>
<div>
M&A success is about sound strategy, valid valuation, and intelligent integration. Twitter appears to have delivered on the first two elements. Let's see if it can pull off the third.</div>
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George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com1tag:blogger.com,1999:blog-8661032247135383120.post-20469743718506698382015-06-20T11:54:00.000-07:002015-06-27T06:42:56.781-07:00Apple and Google algorithm for acquisition goodwill<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijhPGGtxB8KN1KO1rjWIJEWsniiap9uUBLO5F9-0Jg-nBUAnzrXzyA6NIJ00BxKNcY8f5baUzPdVNxOn8y4haIpfUIJrIMKbY5Xy-DTigShs3K6fkZ1XbwBDC94Jd4yXtXoBPWcshcAbM/s1600/tightnormal.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijhPGGtxB8KN1KO1rjWIJEWsniiap9uUBLO5F9-0Jg-nBUAnzrXzyA6NIJ00BxKNcY8f5baUzPdVNxOn8y4haIpfUIJrIMKbY5Xy-DTigShs3K6fkZ1XbwBDC94Jd4yXtXoBPWcshcAbM/s200/tightnormal.jpg" width="150" /></a>When a company makes an acquisition it must identify and value the assets of the target and allocate net purchase price to these assets. If net purchase price exceeds identifiable net assets the balance is assigned to goodwill.<br />
<br />
Now consider Apple and Google acquisitions over the past two years, for which these companies disclosed specific purchase price and associated goodwill.<br />
<ul style="text-align: left;">
<li>Apple acquires Beats (music streaming): purchase price = $2.6 billion; goodwill = $2.2 billion. Goodwill percentage of purchase price = 85%</li>
<li>Google acquires Waze (crowd-source traffic information): purchase price = $969 million; goodwill = $841 million. Goodwill percentage = 87%</li>
<li>Google acquires Nest Labs (smarthome devices): purchase price = $2.6 billion; goodwill = $2.3 billion. Goodwill percentage = 88%</li>
<li>Google acquires Dropcam (smarthome monitoring): purchase price = $515 million; goodwill = $452 million. Goodwill percentage = 87%</li>
<li>Google acquires Skybox (nano-satellites): purchase price = $478 million; goodwill = $388 million. Goodwill percentage = 81%</li>
</ul>
No need to hire a Duff & Phelps or Houlihan Lokey. Looks like the algorithm is simple: goodwill allocation percentage must be a two-digit number staring with an 8!<br />
<br />
<br /></div>
George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-60979235509093694762015-06-13T13:56:00.000-07:002015-06-14T14:42:32.602-07:00Innovation fuel: M&A or R&D?<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjA81hiwJHyZxSMGbjiQDnAquknD5tkvOTj0PBO6MxTImtJIHB6wT0GA-8Jlwz3AQY-v9v37tAW2Ukq28bFdxlD6yaa5Eqxi1SxxBozrhlLUdARJPapf7nyVzqE_I_tms8UibwqRpIZKWk/s1600/fuel.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="149" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjA81hiwJHyZxSMGbjiQDnAquknD5tkvOTj0PBO6MxTImtJIHB6wT0GA-8Jlwz3AQY-v9v37tAW2Ukq28bFdxlD6yaa5Eqxi1SxxBozrhlLUdARJPapf7nyVzqE_I_tms8UibwqRpIZKWk/s200/fuel.jpg" width="200" /></a>One measure that indicates the extent to which a company intends to innovate internally or externally is the ratio of acquisition investments to R&D expenditure. Let's call this M&A/R&D.<br />
<br />
During 2013, Apple's M&A expenditures were $496 million, while R&D amounted to $4,475 million. Thus M&A/R&D was <b>11.1%</b>. In 2014 with the acquisition of Beats (eventually booked as a $2.6 billion cash acquisition), total M&A dramatically increased to $3,557 million. R&D expenditures were $6,041 million. And M&A/R&D mushroomed to <b>58.9%</b>.<br />
<br />
Consider Google. During 2013, the company purchased Waze for consideration of $969 million. Total acquisitions for the year added up to $1,458 million, and R&D amounted to $7,137 million. Hence Google's M&A/R&D for the year equaled <b>20.4%</b>. Then (as was the case with Apple, M&A accelerated in 2014, with acquisitions that included Nest ($2.6 B), Dropcam ($517 M), Skybox ($478 M). Total acquisition investments summed to $5,061 million, while R&D grew to $9,832 million. For this year M&A/R&D was <b>51.5%</b>.<br />
<br />
Three takeaways.<br />
<br />
1) The M&A/R&D ratio is hardly stable. In particular, it's highly sensitive to years in which large deals take place.<br />
<br />
2) Much of present and future R&D can be related to past M&A. So the impact of M&A on innovation efforts may be understated.<br />
<br />
3) For technology companies such as Apple and Google, the trend for M&A to fuel a large part of company innovation is likely to persist.</div>
George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-81769773141782526952015-06-09T15:08:00.002-07:002015-06-10T17:32:50.950-07:00Twitter's acquisitions point to monetization<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBBdJf0cQ55IUAD0A9rP4XsAlMEIQeuJjnBrAxQaBOf2IKHGPpc9SDrzpuI0MTUS6y9LtbJjun8TznkM4nQnPi6ppSHEEHiM0UC29fUgvJ3BvgpYQ4SDcxiG9-EyhsbzTL8ufBZp_qTlU/s1600/monetization.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="166" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBBdJf0cQ55IUAD0A9rP4XsAlMEIQeuJjnBrAxQaBOf2IKHGPpc9SDrzpuI0MTUS6y9LtbJjun8TznkM4nQnPi6ppSHEEHiM0UC29fUgvJ3BvgpYQ4SDcxiG9-EyhsbzTL8ufBZp_qTlU/s200/monetization.png" width="200" /></a>So far in 2015, Twitter's acquisitions are moving away from buying companies that build the core social network to companies that support
monetization efforts and build MAUs (monthly average users).<br />
<br />
Not a completely new strategy, but the corporate business development direction has become more clearly tuned to top-line growth.<br />
<br />
The monetization potential for Periscope, a mobile live-streaming app that lets users shoot and broadcast
video to followers in real time, is particularly promising.<br />
<br />
See our infographic depicting Twitter's 2015 acquisitions at <a href="http://www.trivergence.com/market.asp?MarketID=4208">www.trivergence.com/market.asp?MarketID=4208</a></div>
George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-77476864283194447002015-06-06T12:17:00.001-07:002015-06-06T12:17:38.797-07:00Apple creating augmented reality ecosystem via M&A<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj23Nesm-dzAKkP7dJ_Qey280UFju06VTeKtxx8oyxGuN2wtyj-6WxFkIw2pq0pHpEf7dDWW6cS0t_GzPKuX2ii5g5CfuxDZvB4zdE40JP7chpkEuIU3D3297UIhe3OMo601JRHgJc_5go/s1600/AugmentedReality.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="204" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj23Nesm-dzAKkP7dJ_Qey280UFju06VTeKtxx8oyxGuN2wtyj-6WxFkIw2pq0pHpEf7dDWW6cS0t_GzPKuX2ii5g5CfuxDZvB4zdE40JP7chpkEuIU3D3297UIhe3OMo601JRHgJc_5go/s320/AugmentedReality.jpg" width="320" /></a>The time has come for power tech companies to build augmented reality (AR) ecosystems. Augmented reality involves overlaying digital media and information on the real world. Think pointing a smartphone at a restaurant from a distance and automatically seeing its menu and Yelp ratings appear on your screen.<br />
<br />
Google's Glass, much maligned but certain to re-surface with improved design, is a prominent instantiation of the technology,<br />
<br />
Apple's recent M&A activity signals a ramp up of its own AR ecosystem.<br />
<br />
Organizational ecosystems can be built using <i>influence </i>or using <i>control</i>, Taking an influence approach implies emphasizing partnership or minority investment arrangements, whereas control suggests acquisition or majority ownership.<br />
<br />
When Apple built its original music ecosystem in the early 2000's, it <i>influenced </i>music labels to license content in order to build the iTunes platform. Now as Apple enhances its augmented reality capability, it is initially using control via M&A to build an AR ecosystem.<br />
<br />
Consider three recent Apple acquisitions.<br />
<br />
<ul style="text-align: left;">
<li>In late 2013, Apple acquired PrimeSense, a developer of 3D machine vision technologies
for digital devices for an estimated $360 million. PrimeSensor is a system on a
chip and a 3D sensing device that can see, track, and react to user movements. The company had worked with Microsoft to develop its successful Kinect motion-sensing
gaming/television technology.</li>
<li>In April 2015, Apple acquired LinX Imaging for an estimated $20 million. LinX
develops miniature cameras for use in tablets and smartphones. The company's
cameras capture multiple images simultaneously using proprietary algorithms that can
assess depth and create 3-D image maps. The acquisition continued Apple’s
pattern of deals in Israel. (PrimeSense was also based in Israel.)</li>
<li>Then last month, Apple acquired Metaio, which creates technology that blends
real-world imagery and computer-generated elements into video presentations.
Metaio's augmented reality technology has been used to develop virtual product
showrooms by retailers as well as visual repair manuals for industrial
equipment.</li>
</ul>
M&A ecosystem clusters signal a company's future movement. Apple is clearly intent on throwing its design expertise behind building cool AR products and experiences to show off in upcoming Developers Conferences.</div>
George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-32438389087593804862015-05-07T15:14:00.000-07:002015-05-07T16:04:35.600-07:00Robots, start your engines<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioFSyb8TuwO8x3KW8WbnZ7FMKj898E9yekXPYoTS6wL4bHtMU5c4o1Ck7BtCa5gWMYSM2IydW2ejU5xiO25fZGx7kGjXbKtgQqZx3VoUDBZGBdjMxHVd0GJoAbmwwFLvvvVeL9ROcGl14/s1600/robots.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="110" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioFSyb8TuwO8x3KW8WbnZ7FMKj898E9yekXPYoTS6wL4bHtMU5c4o1Ck7BtCa5gWMYSM2IydW2ejU5xiO25fZGx7kGjXbKtgQqZx3VoUDBZGBdjMxHVd0GJoAbmwwFLvvvVeL9ROcGl14/s200/robots.png" width="200" /></a>The Indianapolis 500 automobile race has been a Memorial Day tradition in the United States since 1911, going back almost as far as the last time the Chicago Cubs won the World Series in 1908. (We Cub fans live on in everlasting hope and frustration!) The dramatic starting command of the race is: "Gentlemen, start your engines," which is modified to "Ladies and Gentlemen, ..." when female drivers are in the race.<br />
<br />
Could this starting command be further modified for races in the decades to come?<br />
<br />
In early 2014, Google acquired DeepMind for a reported $625 million. DeepMind is an artificial intelligence company that builds learning algorithms for applications such as recommendation systems for e-commerce. The company was founded by neuroscientist Demis Hassabis (former chess child prodigy and master gamer), Jaan Tallin (Skype and Kazaa developer), and Shane Legg (researcher).<br />
<br />
Google's acqui-hiring of Deepmind helps it compete against other players focusing on deep learning. Facebook has recruited Yann LeCunn (former NYU professor) to head the company's artificial intelligence lab. IBM is investing $1 billion in its Watson supercomputer division that is working on deep learning to support applications such as medical diagnosis. Yahoo acquired the LookFlow team to lead its deep learning initiative. And on it goes.<br />
<br />
The field of artificial intelligence (AI) has undergone several cycles of boom and bust since AI was christened and sent out the door with research momentum at The Dartmouth Conference of 1958 organized by Marvin Minsky and others. Periods of buoyant optimism for the technology have given<br />
way to AI winters. But in 2014, an AI spring had returned. Google’s purchase of DeepMind reflected the new-found confidence in what AI could accomplish in multiple business sectors of interest to Google.<br />
<br />
In March 2015, Google's DeepMind team revealed an algorithm that can teach itself from scratch to play early computer games with skill equal to or better than a human. The team eventually plans to work on three-dimensional games. According to Dennis Hassibis: "if this algorithm can race a car in a racing game, then with a few extra tweaks it should be able to drive a [real] racing car,"<br />
<br />
Am wondering if DeepMind could start working on a pitching algorithm for the Chicago Cubs. Help us, Dennis Hassibis, you're our only hope.<br />
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George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com1tag:blogger.com,1999:blog-8661032247135383120.post-48917309613482297852014-07-01T17:17:00.001-07:002014-07-01T17:17:39.456-07:00Quest for the perfect playlist<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUTcJXUbjurqoBQ5z2KCDxdtXlj_s5ntA2QvU-nbZkh7zRfSYL9RhEiZmJHcvWl7MDfhLMj1Bo35yGZds6_OkCedNhimfruYspFHkXDUDyCWWW916M7drco3fPaTIBH-Hp9JDiZ799-uc/s1600/perfect.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUTcJXUbjurqoBQ5z2KCDxdtXlj_s5ntA2QvU-nbZkh7zRfSYL9RhEiZmJHcvWl7MDfhLMj1Bo35yGZds6_OkCedNhimfruYspFHkXDUDyCWWW916M7drco3fPaTIBH-Hp9JDiZ799-uc/s1600/perfect.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><br />
<img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUTcJXUbjurqoBQ5z2KCDxdtXlj_s5ntA2QvU-nbZkh7zRfSYL9RhEiZmJHcvWl7MDfhLMj1Bo35yGZds6_OkCedNhimfruYspFHkXDUDyCWWW916M7drco3fPaTIBH-Hp9JDiZ799-uc/s1600/perfect.png" height="194" width="200" /></a>Google has acquired Songza, a music streaming service that develops Android and iOS apps for delivering human-curated music stations based on individual mood and activity. Songza has built data and algorithms that predict what users will enjoy listening to given geography, time of day, weather, or activity -- from sleep to sex.<br />
<br />
Google plans to use Songza’s expertise in other products such as Google Play Music and YouTube. The company stated: "We view the Songza acquisition as a way to further enhance our radio feature by adding their expertise on context."<br />
<br />
The acquisition reflects the steady heating up of the music platform wars among Google and competitors that include Amazon and Apple. A new era for digital music delivery has dawned and may the best mood win.</div>
George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-3883207277855199602014-06-29T12:27:00.000-07:002014-07-06T08:30:14.248-07:00Google's schizophrenia<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="Para" style="margin: 0in 0in 6pt 0.5in;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8O7i72o51ihq_Piafob1pU7uo9SXZI23Mqkab7LEwJAJ7Bq_f8aq8UQPX_zX6y5M9gpAek0jGruV5ATQ41wXpHmh_UTrVxzXZVibs2u3gtHFRl2MGmr-8hxmZCwm1EuDY5aRgHxkytcM/s1600/schitz.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8O7i72o51ihq_Piafob1pU7uo9SXZI23Mqkab7LEwJAJ7Bq_f8aq8UQPX_zX6y5M9gpAek0jGruV5ATQ41wXpHmh_UTrVxzXZVibs2u3gtHFRl2MGmr-8hxmZCwm1EuDY5aRgHxkytcM/s1600/schitz.png" height="100" width="200" /></a>In a highly controversial 2011 transaction, Google purchased ITA software. ITA offered Internet-based software to the airline industry. The company's products included an airfare pricing management system for airlines and travel distributors as well as a passenger reservation management and departure control system. The deal raised questions how far Google would attempt to go into the online travel business.<o:p></o:p></div>
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<div class="Para" style="margin: 0in 0in 6pt 0.5in;">
Later in 2011, Google launched Flight Search, the first product resulting from its purchase of ITA. Also, Google continued to improve its hotel listing service by including virtual tours as well as pricing information.<o:p></o:p></div>
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<div class="Para" style="margin: 0in 0in 6pt 0.5in;">
As reported by <em>The Economist</em> in "Sun, sea, and Surfing" (June 21. 2014), analysts estimate that some 5% of Google's advertising revenue comes from online travel agents such as Expedia and Priceline. So Google may be reluctant to compete too aggressively in this space.<o:p></o:p></div>
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<div class="Para" style="margin: 0in 0in 6pt 0.5in;">
In 2014, online travel agents were spending some $4 billion in digital advertising. Google perhaps was pondering a lesson from the AOL/Time Warner merger, in which AOL struggled (often unsuccessfully) to harmonize the conflicts that emerged with its advertising partners after it owned competing media and other content as a result of the Time Warner deal.<o:p></o:p></div>
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<div class="Para" style="margin: 0in 0in 6pt 0.5in;">
Google appears to be wrestling with its two minds about becoming a major online travel service. Expedia and Priceline are not without some leverage in helping Google make up its mind.</div>
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George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-43410373200855627342014-06-26T17:10:00.000-07:002014-06-26T17:10:26.531-07:00Google purifies Android<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAwjATDxPE_VvgPoopurgjnFOuSkUkRrfXDytazFyuURK9XtdLstDWeW-oHe3j18uouTho6-EAGgAOK2TWPDuUTsqnU1Xermrg8vUPYIQfCkLu1sRie06AnNWZx9Q9aCsOOqUL9vO7l6w/s1600/purify.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAwjATDxPE_VvgPoopurgjnFOuSkUkRrfXDytazFyuURK9XtdLstDWeW-oHe3j18uouTho6-EAGgAOK2TWPDuUTsqnU1Xermrg8vUPYIQfCkLu1sRie06AnNWZx9Q9aCsOOqUL9vO7l6w/s1600/purify.png" height="132" width="200" /></a>Google has acquired Appurify, which offers technology to automate the testing and
optimization of mobile apps and websites for developers. Appurify was founded in
2012 and current has 20+ employees who will join Google. Google Ventures had led
an investment round in Appurify, so the deal represents a staged acquisition.<br />
<br />
Application testing and optimization is a big deal for Android. Tim Cook (Apple
CEO) has highlighted Android's fragmentation problem, glibly quoting others who have
dubbed Android a “toxic hellstew of vulnerabilities.”<br />
<br />
We'll now see how much the Android developers' stew can be consecrated.<br />
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For a complete review of Google's M&A activity during 2014, see <a href="http://www.trivergence.com/market.asp?MarketID=4115">http://www.trivergence.com/market.asp?MarketID=4115</a>.</div>
George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-46103997344431963612013-12-18T14:59:00.000-08:002013-12-18T14:59:48.327-08:00Google robotic acquisitions: a cluster of deals<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQzQ3hA6hFzeoHQXpzZlnQRXWqJ9F3zwtyUg7KPVE9qA-WxnSqh1mFlhEES8ZYtqq3Irh-7aZpNXQpZfHPgAgHsU1wH3FnM0a-QMBSb-8tpt9N095p-DhQC0rGCnTaldcEkUSm8hu99F8/s1600/GrapeCluster.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQzQ3hA6hFzeoHQXpzZlnQRXWqJ9F3zwtyUg7KPVE9qA-WxnSqh1mFlhEES8ZYtqq3Irh-7aZpNXQpZfHPgAgHsU1wH3FnM0a-QMBSb-8tpt9N095p-DhQC0rGCnTaldcEkUSm8hu99F8/s1600/GrapeCluster.jpg" /></a>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.<br />
<br />
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.)<br />
<br />
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.<br />
<br />
Whatever robotic applications spring forth from this acquisition frenzy, the size of the cluster signals Google is serious about this moonshot initiative.<br />
<br />
You can find details about Google and its robotics deals at <a href="http://www.trivergence.com/market.asp?MarketID=4112" target="_blank">http://www.trivergence.com/market.asp?MarketID=4112</a>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-981502051903862792013-09-20T14:05:00.000-07:002013-09-20T14:05:53.273-07:00Semi-organic growth<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-MNj0wjWOd1RTwSME58lera6VOr1oF2R91RcIHDh0c3MrTsX4cPbBWk9LFd-614wERqr9IbyhHqa36a0ZDvPhvQUgEzs3kOxRYqUKxzxJcKiWHe4AAt5Smie83YNKR9Gy6iHskaYqj0M/s1600/semiorganic.JPG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="168" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-MNj0wjWOd1RTwSME58lera6VOr1oF2R91RcIHDh0c3MrTsX4cPbBWk9LFd-614wERqr9IbyhHqa36a0ZDvPhvQUgEzs3kOxRYqUKxzxJcKiWHe4AAt5Smie83YNKR9Gy6iHskaYqj0M/s200/semiorganic.JPG" width="200" /></a>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.<br />
<br />
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 <em>semi-organic</em> <em>growth</em>, meaning Google acquires an <em>external</em> team/company and then skillfully attaches that team to a specific <em>internal</em> product area to accelerate the growth of that product.<br />
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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 -- <span style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;"><a href="http://youtu.be/ZeCf3C86IBU"><span style="color: blue;">http://youtu.be/ZeCf3C86IBU</span></a>.</span>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-77703892214841254582013-03-11T14:36:00.000-07:002013-03-11T14:36:00.369-07:00Goodwill -- here today gone tomorrow?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLOKOAPi4jDPBJgkX9oCMOIfTtTyzpRVA99s0PPjAoWtemUKEx_orhEZX9e2wlBD0ECmQk5CnN8Jzk1wwvWXzQF1oDwLlJRSnk5NLRcDGW-ZGvpKBJ1ZRAIMFrGI8AWL34LO5PFiyqZb0/s1600/goodwill.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLOKOAPi4jDPBJgkX9oCMOIfTtTyzpRVA99s0PPjAoWtemUKEx_orhEZX9e2wlBD0ECmQk5CnN8Jzk1wwvWXzQF1oDwLlJRSnk5NLRcDGW-ZGvpKBJ1ZRAIMFrGI8AWL34LO5PFiyqZb0/s1600/goodwill.png" /></a></div>
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.<br />
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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.<br />
<br />
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.<br />
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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%.<br />
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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.<br />
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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.<br />
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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.<br />
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George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-15594428143647202402012-07-12T12:18:00.000-07:002012-08-04T13:28:27.794-07:00Apple Acquisitions<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq5fb-f4aIYL4cdzZq_EiVZAagBSzoD2kr2IIF_kDt83bjYOmGkirsRszWX6DQjyEhRgfr1Y9iNcIgOBdzA6OseYt0OdyWTLH5D-0JbhW8wm0_l4ZyxriuhhC3S7Bowo6p99uDrTPrIA0/s1600/AppleAcq.PNG" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq5fb-f4aIYL4cdzZq_EiVZAagBSzoD2kr2IIF_kDt83bjYOmGkirsRszWX6DQjyEhRgfr1Y9iNcIgOBdzA6OseYt0OdyWTLH5D-0JbhW8wm0_l4ZyxriuhhC3S7Bowo6p99uDrTPrIA0/s400/AppleAcq.PNG" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://www.trivergence.com/market.asp?MarketID=4109" target="_blank">Apple acquisitions since 2001</a></td></tr>
</tbody></table>
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.<br />
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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.<br />
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The infographic on the right depicts these 20 acquisitions, clustering the deals by market segment. You can view much more detail at <a href="http://www.trivergence.com/market.asp?MarketID=4109" target="_blank">Apple acquisitions since 2001</a>.<br />
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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.<br />
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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.George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com1tag:blogger.com,1999:blog-8661032247135383120.post-53344384796930349212012-05-20T11:23:00.000-07:002012-05-20T11:23:57.254-07:00M&A Ecosystem Synergy: Much More than Sum of Parts<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3alhEZkvdWzT7e3nnG2Cx3-qXSN6uro9U4-xI3SknglRYAqRXcm20EyWpDJcWLHNRGoBZ1Y9y-24Abm0VQ8EdsXqNQa7C_FOg41ALm7mOkxgGI-EtzfEtl_wyBCS7751KsyYmuuC0SWA/s1600/synergy.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3alhEZkvdWzT7e3nnG2Cx3-qXSN6uro9U4-xI3SknglRYAqRXcm20EyWpDJcWLHNRGoBZ1Y9y-24Abm0VQ8EdsXqNQa7C_FOg41ALm7mOkxgGI-EtzfEtl_wyBCS7751KsyYmuuC0SWA/s320/synergy.jpg" width="320" /></a>We’ve heard about<em> M&A synergy</em>, 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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
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 <em>ecosystem synergy</em> can be realized.<br />
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. <br />
<br />
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.<br />
<br />
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. <br />
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For more information on this constellation of deals, see <a href="http://www.trivergence.com/market.asp?MarketID=4107">http://www.trivergence.com/market.asp?MarketID=4107</a>.<br />
<br />
<em>Research support provided by Debadutta Bhattacharyya and Ahreum Hong.</em>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com1tag:blogger.com,1999:blog-8661032247135383120.post-16419641496853822332012-05-17T17:39:00.001-07:002012-05-18T06:38:00.209-07:00Starbucks M&A in China: from Forbidden to Far and Wide<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgI1Ceog1bXJwXkUqF1ekH_Ys_t-7ymvajy1cDVpje1ydZf9V9Ssyk6TV2uhzEvOY8jRK8LvnotkBrmhJWad01Q-6Pf88_rIxIRXplSiDYsAkz4_4J-azKr3ssflbo-bG_3OzYA141Pb1c/s1600/sbux.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="238" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgI1Ceog1bXJwXkUqF1ekH_Ys_t-7ymvajy1cDVpje1ydZf9V9Ssyk6TV2uhzEvOY8jRK8LvnotkBrmhJWad01Q-6Pf88_rIxIRXplSiDYsAkz4_4J-azKr3ssflbo-bG_3OzYA141Pb1c/s320/sbux.jpg" width="320" /></a>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.<br />
<br />
<div class="MsoNormal" style="margin: 0in 0in 10pt;">
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. </div>
<div class="MsoNormal" style="margin: 0in 0in 10pt;">
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. </div>
<div class="MsoNormal" style="margin: 0in 0in 10pt;">
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.</div>
<div class="MsoNormal" style="margin: 0in 0in 10pt;">
Starbucks intends to move from forbidden to far and wide.</div>
<div class="MsoNormal" style="margin: 0in 0in 10pt;">
<em>Research assistance provided by Gaurav Vij<o:p></o:p></em></div>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-36571017656491568402012-04-07T13:07:00.001-07:002012-04-07T13:07:29.036-07:00Google's Major Acquisitions<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRI66YCZo73kvL-aWxTf3X6jvzPsKlaHZ4o-F1UQV4iviTP1S1ywb_Qxg1tTWhcqqjC-v_CQCinNyGt23lfHdlD4MxYlBFWrImokn4zbkxldYQ9DPGoe3z7eKgBMa9v2zMrACOV7exbzU/s1600/Significant.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRI66YCZo73kvL-aWxTf3X6jvzPsKlaHZ4o-F1UQV4iviTP1S1ywb_Qxg1tTWhcqqjC-v_CQCinNyGt23lfHdlD4MxYlBFWrImokn4zbkxldYQ9DPGoe3z7eKgBMa9v2zMrACOV7exbzU/s200/Significant.jpg" width="200" /></a></div>
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+.<br />
<br />
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.<br />
<br />
For our take on Google's most significant acquisitions, see the infographic at <a href="http://www.trivergence.com/market.asp?MarketID=4105" target="_blank">http://www.trivergence.com/market.asp?MarketID=4105</a>. This visual is destined for change as Google's corporate acquisition machine continues its march forward.<br />
<div class="separator" style="clear: both; text-align: center;">
</div>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com0tag:blogger.com,1999:blog-8661032247135383120.post-27037326189344461652011-10-17T11:33:00.000-07:002011-10-17T15:13:11.416-07:00Has Apple Been Too Greedy?<div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXwZNaIAHRvtqQegUeHJOjL3fdg_UefLuVafa6q3om3oOE0GROW4u7qhLi3C4cVnPbHE3E0FJsfAdbpLMrhzXCx4x4N7vqbS3VLtlNOE2UEyF-GMuc4YayGc3c7sDNZT37ITBtPic74qY/s1600/Greedy.JPG"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 200px; FLOAT: right; HEIGHT: 149px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5664533398046704642" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXwZNaIAHRvtqQegUeHJOjL3fdg_UefLuVafa6q3om3oOE0GROW4u7qhLi3C4cVnPbHE3E0FJsfAdbpLMrhzXCx4x4N7vqbS3VLtlNOE2UEyF-GMuc4YayGc3c7sDNZT37ITBtPic74qY/s200/Greedy.JPG" /></a> According the Recording Industry Association of America (RIAA), sales of recording music in the US was cut in half over the past decade (from some $14B in 2001 to $7B in 2010). Over this same period, Apple's market capitalization multipled some 30 times. Apple's valuation explosion during this period certainly did not solely derive from its use of the music to sell iPods, but it was music that kick started Apple's value capture momentum. And while Apple flourished, its recording company partners floundered.</div><br /><div> Earlier this month, the <em>Wall Street Journal </em>highlighted the leverage that Apple has over telecom providers eager to sell its iPhone. Sprint has apparently committed to buy a staggering $20 billion of iPhones, whether or not the company can sell the devices. Great for Apple to lock in such high-volume orders and then be able to negotiate down its component prices. But is Sprint putting a gun to its head by agreeing to Apple's aggressive terms in the highly competitive smart phone market with Android devices (now) and Windows Mobile phones (soon-to-be) challenging iPhone leadership.</div><br /><div>Has Apple been too aggressive, too greedy in dealing with its partners? Has it sucked so much out of key ecosystems (such as music and telecom) that key elements are threatened? Has its valuation gains led to the emaciation of venture relationships? Will Apple's brand continue to be highly valued by consumers, but increasingly loathed by deal partners? Will there be a rising crescendo of push-back by value chain companies who feel that Apple has taken too much off the table for itself?</div><br /><div>Not a problem, you say. Apple has $76 billion in cash/cash equivalents on its balance sheet and is on pace to soon be the first company ever to squirrel away over $100 billion given an annual inflow of $15-20 billion of free cash. That means Apple could make numerous major acquisitions, integrating more and more elements of its key market value chains within its own control thereby reducing the need for business development partners. Right?</div><br /><div>Hardly. Few companies will now receive more antitrust scrutiny than Apple is likely to face over the next decade. So much currency, but so few choices on what to buy with it. Share buybacks or large dividends, yes. But these latter options while good for shareholders will not support company growth.</div><br /><div>Squeezed between potential partner pushback and anticipated antitrust attention, Apple will find its abundance of riches a mixed blessing. Aggressive deal making has paid off, but not without challenging side-effects.</div>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com1tag:blogger.com,1999:blog-8661032247135383120.post-82791272181948946312011-04-02T17:19:00.000-07:002011-04-15T13:18:25.291-07:00Visualizing M&A Future Moves<p><a href="http://2.bp.blogspot.com/-mQdWLLfjGeg/TZfF5QgvReI/AAAAAAAAAEY/0rpW-26-Usw/s1600/future2.jpg"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 200px; FLOAT: right; HEIGHT: 192px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5591155049879258594" border="0" alt="" src="http://2.bp.blogspot.com/-mQdWLLfjGeg/TZfF5QgvReI/AAAAAAAAAEY/0rpW-26-Usw/s200/future2.jpg" /></a>I love well-designed business development infographics. Infographics that portray a past story and suggest future direction. M&A infographics particularly excite me. Show me what a company has recently acquired, illustrate the product or service gaps that now exist, and then suggest future M&A activity.</p> <p>Here's an example -- <a href="http://www.softwareadvice.com/articles/enterprise/hp-mergers-acquisitions-who-is-next-1031401/" target="_blank">What's next for HP M&A?</a> This infographic illustrates HP M&A activity for the past ten years by sector and by deal size. Then the author suggests future deals that might fill in gaps.</p><p>Of course, predicting future moves is tricky business, especially when it comes to M&A activity. Gap analysis, as useful as it is, is not the only motiviation for M&A. Sometimes management wants to consolidate existing markets -- think AT&T and T-Mobile. At other times, a company may want to move into new markets -- think Berkshire Hathaway and Burlington Northern. Other motivations abound.</p><p>Predicting M&A action is no easy chip shot. But visualizing the past provides context. And increases your odds at mapping the future.</p>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com2tag:blogger.com,1999:blog-8661032247135383120.post-2585755189453723422011-03-23T07:07:00.000-07:002011-03-23T09:04:33.694-07:00Breaking up is hard to do<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiMpTuh02AVoqM6xho7JlJY75XMYg8j4MR39N2lU_AsWaIBHtfUFizalFKuknq9VZ3ssvsNlyFSdKk85QYfkvfb4YcZ3WQuQ8Q8dXHmvKS7sT4Y8jBjU3LiQtR2QT4lZoH5ivnfL5kjqSU/s1600/breakingup.jpg"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 259px; FLOAT: right; HEIGHT: 194px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5587282951601882530" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiMpTuh02AVoqM6xho7JlJY75XMYg8j4MR39N2lU_AsWaIBHtfUFizalFKuknq9VZ3ssvsNlyFSdKk85QYfkvfb4YcZ3WQuQ8Q8dXHmvKS7sT4Y8jBjU3LiQtR2QT4lZoH5ivnfL5kjqSU/s320/breakingup.jpg" /></a>One of the terms that convinced T-Mobile to accept the offer from AT&T rather than other bidders was the large ($3 billion) breakup fee that accompanied AT&T's $39 billion bid. At 7.7%, this breakup fee is huge by typical deal standards -- such fees tend to be in the 2-3% range. For example, Lubrizol, the industrial lubricants company that recently agreed to be bought by Warren Buffett's Berkshire Hathaway, will pay $200 million (2.2% of the $9 billion deal) if the break the acquisition agreement.<br /><br />If there is a breakup (termination) fee in a deal structure, more often than not it goes to the acquirer <em>if the target walks away from the deal</em>. This fee is intended to reflect the direct and opportunity costs the acquirer incurs such as advisory expenses and executive time spent on the deal. In one study of 1,100 acquisition agreements, 55% of deals included a target breakup fee, whereas only 21% of the deals had breakup fees for both target and acquirer. Targets apparently have greater incentive to break contracts and seek other "lovers".<br /><br />Technically the fee to be paid by AT&T (acquirer) to T-Mobile (target) upon deal collapse is deemed a <em>reverse breakup fee</em>. The $3 billion sum is not the largest such fee in history in absolute terms. For example, reflecting the difficult credit environment in 2009, Pfizer would have had to pay Wyeth $4.5 billion if it could not get necessary loan approvals to get the deal done. And AOL was on the hook for $5.4 billion if the company walked away from the Time Warner deal. (Time Warner had a reciprocal breakup fee of $3.9 billion on this deal -- in hindsight Time Warner should have bolted and paid this sum to loose itself from AOL's grip.)<br /><br />However, on a percentage basis ATT's 7.7% breakup bounty tops both the Pfizer and AOL fees. T-Mobile will walk away with this largess (plus some AT&T spectrum) if regulatory authorities such as the DOJ or FCC nix the deal. AT&T's legendary regulatory team will be put to the test as it attempts to convince a hardened antitrust administration that this deal has merit. T-Mobile executives can be more relaxed as they win no matter the outcome.George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com2tag:blogger.com,1999:blog-8661032247135383120.post-25211340521246482192010-12-03T15:54:00.000-08:002010-12-03T15:59:37.927-08:00M&A integration: not one size fits all<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2M_lrlL3JngYqKj4A_Uu2H9bo_LRddlSvXxSKzczGhqTO1yNXGdss_xtgYzblReS2kbDGdvqLUVUnKSBDIg9fYr0Orju5ZdaC3amXhphnqvZwC-L3DGpNAQb33PPO9KvmKvh_waU-1sM/s1600/NotOneSize.jpg"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 244px; FLOAT: right; HEIGHT: 207px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5546609796183669394" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2M_lrlL3JngYqKj4A_Uu2H9bo_LRddlSvXxSKzczGhqTO1yNXGdss_xtgYzblReS2kbDGdvqLUVUnKSBDIg9fYr0Orju5ZdaC3amXhphnqvZwC-L3DGpNAQb33PPO9KvmKvh_waU-1sM/s320/NotOneSize.jpg" /></a> <div>Near the end of Cisco’s acquisition binge of the 1990’s, CEO John Chambers once remarked: “In a merger you can't blend resources and cultures--only one can survive." At that time Chambers’ approach to M&A integration involved pure <em>absorption</em>. The Star Trek/Borg axiom “resistance is futile, you will be absorbed” played center stage. Cisco’s culture would dominate.<br /><br />By the time Cisco bought Scientific Atlanta (SA) in 2006, Chambers attitude toward M&A was changing. This acquisition would <em>extend</em> Cisco’s domain, not merely <em>strengthen</em> it. And Cisco saw there were certain management processes (including supply chain management) where it could learn a lot from SA. Cisco’s integration approach for this deal would move from absorption to <em>alchemic</em>.<br /><br />Kent Kresa, former CEO of Northrup Grumman and architect behind many noteworthy Northrup acquisitions, likes to compare M&A integration to New York City in the late 1800’s. While immigrants from countries such as Ireland and Italy would be absorbed into the City, an alchemic process was also working whereby the best of each culture would be amalgamated into a <em>new</em> New York. So it is with M&A combinations where the best of each company should be put forward.<br /><br />There’s a time for M&A <em>absorption</em> to prevail, especially where the need for autonomy in the target is low while the need for strategic interdependence high. But there’s a time for <em>alchemy</em> to govern, especially where both acquirer and target have distinctive advantages that should be blended.<br /><br />Furthermore, there’s a time for <em>preservation</em> to triumph, especially where the culture of the target should be allowed to remain intact lest a “buy and crush” dynamic destroy the organization elements that made the target attractive. For example, Warren Buffett’s Berkshire Hathaway is famous for preserving (and then nurturing) its acquisitions.<br /><br />Finally, <em>hybrid</em> integration approaches at times will be the most effective. Consider Cisco buying a networking component company to complete a solution stack it can offer Cisco customers. While tight product integration demands <em>absorption</em> of the target, there might be a “center of excellence” within the target (say software development) that Cisco should <em>preserve</em> and even enlarge. In this case, both absorption and preservation are employed.<br /><br />Successful M&A involves the art of integration. But there is not one master template for this art form. Value capture that derives from M&A integration is not a one-size-fits-all proposition.</div>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com1tag:blogger.com,1999:blog-8661032247135383120.post-75049475494909424982010-08-12T15:32:00.000-07:002010-08-12T16:03:46.849-07:00M&A at a torrid pace<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-76AAcvqdBdrRQ2vXji7aiVUd5gUEEhgmNc0VzHe9fOhnwI5bu6k4844-fp4qbBcd-GAV2qPjnpxZ8Jl0n3W7GaaaeUvB7fi6W3ryED4Zw5YyoZ2ditd-zSlqpgIk4Bic_GN-MHHQy60/s1600/FastPaced.jpg"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 160px; FLOAT: right; HEIGHT: 106px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5504661262922241442" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-76AAcvqdBdrRQ2vXji7aiVUd5gUEEhgmNc0VzHe9fOhnwI5bu6k4844-fp4qbBcd-GAV2qPjnpxZ8Jl0n3W7GaaaeUvB7fi6W3ryED4Zw5YyoZ2ditd-zSlqpgIk4Bic_GN-MHHQy60/s320/FastPaced.jpg" /></a><br /><div><div>The summer months have certainly not dampened Google's M&A appetite. By my count, the company has done 18 acquisitions this year, with three deals already done so far this August. With the IPO market still somewhat cool, Google is providing a one-stop exit shop for the technology sector. In fact, Google's 18 acquisitions just about equal the number (22) of technology/software companies that have gone public so far this year!</div><br /><div></div><div>For an infographic of Google 2010 acquisitions, see <a href="http://www.trivergence.com/market.asp?MarketID=4087">http://www.trivergence.com/market.asp?MarketID=4087</a></div></div>George T. Geishttp://www.blogger.com/profile/00969582317887315970noreply@blogger.com1