Tuesday, February 11, 2014

(BN) Google Deal Machine Ramps Up to Pass Intel in Top Spot

Google Inc. (GOOG), the company that leads Internet search, has gained a new superlative: top dealmaker.

From buying a digital-thermostat developer to selling a mobile-phone business, Google has executed more deals than any company in the world over the past three years, according to data compiled by Bloomberg through January, up from 13th place in the three years prior. Advertising-firm WPP Plc (WPP) was second, followed by chipmaker Intel Corp. (INTC)

Since taking over as chief executive officer in 2011, co-founder Larry Page has pushed Google beyond Web advertising. He's used the company's cash, which totaled $58.7 billion in the latest quarter, to invest in connected devices, business services and mobile applications. The mergers and acquisitions group, led by Don Harrison, has expanded by at least 50 percent in the past two years, a person with knowledge of the unit said. Meanwhile, Google Ventures has become a big startup spender, and a new group called Google Capital backs later-stage companies.

"It is absolutely starting to feel like a deal machine," said Maha Ibrahim, a partner at venture firm Canaan Partners in Menlo Park, California, which has co-invested with Google Ventures and Google Capital. "Because they have such a diverse base of interests, you see these acquisitions coming out of left field that have very little to do on the surface with the ad business."

Cash Deals

Including acquisitions, investments and the occasional divestiture, the Mountain View, California-based company has been involved with 127 deals in the past three years, more than double the number from January 2008 to 2011, according to the data. While the total value of Google's deals rose to $17.6 billion, that still trails companies such as General Electric Co. at $19.9 billion and Blackstone Group LP at $62.3 billion, the data show. That includes investments that came from other companies and excludes some venture deals that go undisclosed.

Intel, which also has a venture unit, led the prior three-year period with 104 deals, and fell to third in the most recent stretch with 121 transactions.

Google, whose cash holdings are larger than the economy of Tunisia, has been writing bigger checks, a shift from a few years ago, when deals were usually tied closely to online traffic or ads, and were rarely more than $1 billion.

Big Bets

Google agreed last month to buy digital-thermostat maker Nest Labs Inc. for $3.2 billion, moving further into hardware. To bolster its experiments in robotics, Google acquired Boston Dynamics Inc. in December, adding to several other purchases in the industry last year, and bought DeepMind Technologies Ltd., a London-based artificial intelligence developer, in January.

"Google is willing to take equity bets and cash bets trying to acquire the next new revenue stream," said Salman Ullah, who led M&A at Google from 2004 to 2007 and is now a partner at Merus Capital in Palo Alto, California. In the past, "there was a reluctance to do super people-intensive deals and that fell by the wayside. The appetite for non-traditional targets has gone up."

In 2013, the two biggest private financings of U.S. technology companies, not including takeovers, involved cash from Google. Online questionnaire service SurveyMonkey Inc. raised about $444 million in January 2013, with Google Capital taking part, and two months later Google Ventures led a $361.2 million investment in car-booking app Uber Technologies Inc.

Active Pipeline

Last year, Google's corporate development team outflanked Facebook Inc. (FB) in acquiring mapping-software provider Waze Inc. for almost $1 billion. Facebook had also been in talks to buy DeepMind when Google swept in, The Information reported.

Harrison, who was Google's deputy general counsel before taking over the M&A team more than a year ago, said at a Bloomberg conference in June that his group is closing a transaction about every two weeks and has a "pretty active pipeline." Prior to joining Google's legal team, Harrison, worked at law firm Wilson Sonsini Goodrich & Rosati.

"They're very good professional acquirers," said John Malloy, a partner at BlueRun Ventures and investor in Waze. "They know what they're doing."

Former M&A chief Ullah worked with Harrison on Google's $1 billion investment in AOL in 2005. Ullah said that while he was on the verge of falling asleep in the seemingly never-ending meetings, Harrison just kept going.

"He has unlimited stamina," Ullah said. "No amount of detail is too much for him."

Google declined to make Harrison available for comment.

Wide Reach

The spending spree is also raising concern that Google has an unfair advantage over smaller competitors because of its cozy relationships and inside knowledge of so many industries, said Marc Rotenberg, executive director of the Electronic Privacy Information Center in Washington. Google controls two-thirds of the U.S. search market and has more than 1 billion users of its YouTube video service.

"Increasingly the question arises -- why isn't there greater scrutiny of Google's practices?" Rotenberg said.

Google's strategy is in contrast to that of Apple Inc., the only Silicon Valley company with more cash on its balance sheet. The iPhone maker has only taken part in 12 deals in the past three years, according to data compiled by Bloomberg, and has been sending cash back to shareholders in the form of dividends and buybacks. Google's shares have climbed 97 percent over the period, while Apple has advanced 48 percent.

Ideas, Moonshots

Google agreed last month to sell its Motorola handset business, which it bought for $12.4 billion in 2012, to Lenovo Group Ltd. for $2.91 billion. Google said it was better off focusing on its mobile Android software and retaining key patents valued at $5.5 billion at the time. Google also sold off Motorola's set-top box business for $2.24 billion last year.

While there is concern that Google is extending its reach too far, the co-founders are keeping with their vision of seeking technology that can solve big problems, according to Patrick Mork, a former marketing director at Google Play, which sells applications and content for Android devices.

"These guys have always been a little idealistic about wanting to use technology to change things on a large scale," said Mork, who is now an entrepreneur in residence at Signia Venture Partners. "It's by taking these moonshots."

Broad Approach

Google Capital is the newest unit for later-stage investments. It has at least a half-dozen employees, according to current public profiles on LinkedIn Corp. That includes partner Gene Frantz, who joined last year from TPG Capital, where he worked for more than a decade. David Lawee, Google's former M&A chief, leads the group.

Last year, Google Capital was part of a $125 million investment in LendingClub Corp., an online peer-to-peer loan service in San Francisco. Earlier, it joined private-equity investors in backing SurveyMonkey. Both companies are aiming to serve small businesses, an area of focus for Google as it expands its cloud software offerings.

"Google has been a very good acquirer as they have been good at integrating and benefiting from their deals," said Dave Goldberg, CEO of Palo Alto-based SurveyMonkey.

With Google Ventures, the company makes bets on startups that may not have a lot of market traction or revenue. The unit started in 2009 and is funded by its parent, which is providing $300 million a year, up from $200 million in 2012. Google Ventures made 75 investments last year and had 10 exits, including three initial public offerings. The group has more than 50 employees, including nine general partners and one managing partner.

New Technologies

"When we founded Google Ventures, we structured the fund to build in an unprecedented level of autonomy," Bill Maris, managing partner at Google Ventures, wrote in an e-mail. "The idea was never, 'What can startups do for Google?' It was always, and remains, 'What can we do for startups?'"

Tom Moss, co-founder of Nextbit Systems Inc., took an investment from Google Ventures along with Accel Partners, where he's an entrepreneur-in-residence.

"Google is still very well regarded in the technology community, generally as a company that loves technology and wants to push technology forward," Moss said.

Google needs to find new markets after sales growth slowed to 19 percent last year from 37 percent in 2012. In addition to the added revenue from acquisitions, investments have the potential to provide insights into emerging markets or promising technologies that Google wouldn't otherwise see.

"They really are all over the map," said Ethan Kurzweil, a partner at Bessemer Venture Partners in Menlo Park. "Every strategy you can imagine a company employing, they're employing in one way or another."

No comments: