Chapter 7 explains how acquisitions have played a key role in extending Google beyond its core search/advertising business to an ever-expanding technology platform for new products and services. The chapter explores acquisitions that relate to subsectors of this platform, including smartphone, smart home, robotics, and artificial intelligence.
Chapter 8 illustrates that although Google is regarded as having developed the most successful technology M&A program in history, certainly not all of its deals have done well. This chapter examines some of Google's abortive transactions and suggests reasons for these failures. We also provide an analysis of gains and losses associated with the purchase of Motorola Mobility.
Chapter 9 examines when a publicly traded company such as Google announces an acquisition. When must the company disclose deal valuation and other key terms? This chapter focuses on the M&A disclosure practices of Google and Apple and explores possible motives for deal disclosure or secrecy.
Chapter 10 describes how an acquirer can pay for a target using accumulated free cash flow, using cash raised from a new debt or stock offering, exchanging shares of its stock for shares of the target, or combining these forms of payment. How often has Google used stock in purchasing a company? What are the motives for using stock as opposed to cash? How does Google's consideration choices in its M&A transactions compare to those of other major technology companies such as Apple or Facebook?
Chapter 11 highlights that for some M&A transactions, not all consideration is paid out by an acquirer at the close of the transaction. Earn-out consideration contingent on the target meeting performance metrics can be used. Or retention bonus consideration (in cash or in stock) can be provided to motivate target employees to stay on with the acquirer for a period of time. We'll explore how these forms of contingent consideration have been used by Google and other leading technology and media companies.
Chapter 12 stresses that successfully integrating an acquisition is vital if M&A value is to be captured. This chapter explores some classic strategic dimensions that provide a high-level framework for M&A integration. We examine how Google's semi-organic form of acquisitions fits into this scheme and how Google has learned to be more effective in executing a challenging integration strategy. We also describe some notable Google failures in M&A integration.
Chapter 13 highlights that a substantial amount of M&A activity is undertaken to support specific products or services that can reach customers. This chapter uses Google as an example to illustrate a market model that maps a company's products and services and how a particular acquisition might enhance these offerings. We also identify four major types of acqui-hires, talent/technology purchases designed to accelerate sales of both existing and new products and services. Finally, we explore career moves by a number of Google M&A alumni, company founders who sold organizations to Google, worked to add value to a Google offering, and subsequently made significant career changes.
Chapter 14 examines how competitive contests such as the Amazon/Google struggle for market control in e-commerce and advertising can be understood by developing M&A deal constellations. We next illustrate the concept of ecosystem synergy and demonstrate how this type of synergy can strengthen competitive positioning and add value to a company. We show how a number of Google's acquisitions have achieved this higher order of synergy.
I hope you enjoy and benefit from this journey through the land of Google's semi-organic M&A!
Watch the Videos
This book is accompanied by a companion website that includes a short introductory video, together with 14 additional online videos, each about 10 minutes in length. The content of each video is designed to add to your understanding of key concepts found in a given chapter. You'll find these videos referenced at the end of each chapter.
For the URL and access code for your online videos, please refer to the instructions at the end of this book.
Acknowledgments
I have greatly benefited from the insights and support of many colleagues, friends and students in writing this book.
Debbie Foster, Olaf Westheider, and Steven O'Toole provided inspiration and outstanding technical support in the development of the concept of market modeling.
Sean Carr, Executive Director of the Batten Institute at the Darden School of Business, University of Virginia, suggested that I give a talk while on campus as a visiting professor. The talk, which involved Google's acquisition strategy, was uploaded to YouTube and subsequently viewed by Bill Falloon, Executive Editor of Finance and Investment at Wiley. Bill encouraged me to write a book expanding upon the talk. Thus the origin of Semi-Organic Growth.
My special thanks to Bill Falloon and Meg Freeborn, Development Editor at Wiley, for their encouragement throughout this project. I also appreciate the assistance of the entire Wiley team for their support in completing this effort.
I regard the M&A writings of Bob Bruner, Dean of the Darden School, as foundational to a number of ideas that appear in this book. I've benefited from my ongoing conversations with Bob.
I am indebted to many students and research collaborators for insight and assistance. These include James Biskey, Debadutta Bhattacharyya, Neelima Clark, Tom Crow, Zubin Davar, John Dearing, Reggie Hall, Kevin Hopkins, Ahreum Hong, Kyle Jansen, Joey Lei, K. Burns McNamee, Alisa Sommer, Emily Scadden, Renu Senjalia, Joshua Schachter, Jacqueline Sutro, and Miao Wang. Please forgive any omissions.
I am not writing this book as a Google insider. However, I have benefited from interviews with numerous present and past Google employees, conducted as reality checks. I am extremely grateful for the insights provided.
I deeply appreciate the entire UCLA Anderson environment for decades of support. Special thanks to Al Osborne, Elaine Hagan, Martin Lieberman, and George Ingersoll.
Finally, I'd like to thank my wife, Penny, who graciously postponed getting our new Springer Spaniel until the first draft of this book was completed. Now it's time for many more long walks along the Cambria ocean bluffs.
Chapter 1
M&A Success and Failure
Konrad Lorenz's classic experiment with graylag geese captures the attention of many college freshman enrolled in an introductory psychology class. Lorenz found that geese would imprint on the first movable object within a critical period occurring 13 to 16 hours after hatching. It didn't matter whether the “parent” object was Lorenz's boots or a box placed on a toy train moving around a circular track.
Imprinting involves phase-sensitive learning whereby an animal or person establishes a pattern of attachment to another animate or inanimate object. Business ventures can also experience imprinting events during the early stages of development.
The notion that a corporation's early experiences can have lasting impact on future development has long been noted.1 A firm commonly experiences an inertial impulse very early in its history that persists for a significant duration.2 This initial organizational experience can involve corporate development activity. For example, Milanov and Fernhaber presented evidence that the initial alliance experiences of a venture affect future alliance formation patterns.3
Similarly, the acquisition of Applied Semantics early in Google's history (before going public in 2004) imprinted upon the company not only a proclivity to do mergers and acquisitions (M&A), but also