October 2010 webinar continued ..
Ward
Carter
Thanks,
Tomoki, for a great update. Next we're going to move into the
portion of the presentation on selling to Google. I'd like to invite
Dougan Milne, our VP of research to lead that, please.
Dougan
Milne
Thank
you Ward and Tomoki. Great presentation there about our markets and
some really interesting deals.
It is
funny, this time right now, this past quarter, I feel like it's been really
dramatic. We've had a massive fluctuation in some of the markets, coming up
from a tough time earlier in the summer and markets have really swung back in a
positive way, which is great. We've only seen on the M&A side
some pretty intense bidding wars and some very high valuations, so an
interesting time for sure.
Corum
was just the platinum sponsor this past Tuesday, so just a couple of days ago,
at the World Financial Symposium's Growth and Exit Strategy conference in
downtown Seattle. This is the first time that the WFS has been in
Seattle. To be honest, we were a little nervous about what the
turnout would be, it turned out to be fantastic, as a matter of fact, we had
the greatest attendees and a great level of attendees, a lot of entrepreneurs
with excellent start ups. Then, our speakers, our participants, our
content was all really high level stuff. Steve Singh from Concur was
a keynote speaker, Peter Coffee from Salesforce, all the big Corp Dev guys from
most of the major companies and a lot of the big VCs were there as
well. It was a great day for everybody that was around.
We're
going to jump right in here, I mentioned that WFS because I had a chance to sit
down with (xxx 26:13) and ask a couple of questions regarding Google's acquisition strategy. He
is Corp Dev with Google, so we're going to get to his slides here in a moment,
and those questions. We also had a chance to sit down with some of
the sellers, those that Corum has represented, and others that we have been
involved with, in terms of selling to Google, so we'll look at those in a
moment, too.
But,
before we do that, I want to take a quick snapshot of 2010
here. We're looking at, call them the run of the mill, if you will,
but these are our standard big buyers across the big board, and what you can
see on the far right side is Microsoft, having just announced their first
transaction of 2010. Their first transaction of the
year! As an analyst myself, that makes me really
uncomfortable. Going down the line here, we have Twitter, Amazon,
Dell at four, Zynga and Facebook, our big social and casual gaming movers, two
of the fastest-growing companies in the world, both with 7 transactions so far
in 2010. Remember that Facebook hasn't actually been doing
transactions previous to this, they've really just started this transaction
spree in the past six months or so, so keep an eye on them, we're interested to
see where this spree takes them. Oracle and HP both have 8
acquisitions, IBM has 13, and then Google... I mean, they're going
for a new land speed record here. Twenty-five acquisitions as of at
least two days ago, was the most recent one, and I haven't spent enough time on
the newsreels this morning to know if something else
happened. They're just moving so fast. So, that is an
average of about 2.5 acquisitions per month.
Let's
put some perspective on that. We have seen rates like this
before. Both IBM and Microsoft have been involved so that they would
have, say, six deals in the course of two months. But we haven't
seen this kind of a rate, as Google has now, for this long of a period of
time. After talking to Corp Dev at Google, it seems very clear that
this pace is going to continue.
Before
we jump into some of the more recent transactions, I want to take a short
historical snapshot. I picked out about 10 deals here that happened
over the past decade and how they have really shaped and formed Google as a
consumer company, as an enterprise company, and as a piece of fiber of the
internet structure.
Let's
start down at the bottom. Back in 2003, Pyra Labs had been very much
into the weblogs, which if course became blogs as we know them
today. They had developed one of the most used blogging services on
the internet, that was Blogger. Google bought that back in February
of 2003. I suppose versus today where most things are done in
phrases of about 140 characters, the blogs are less popular than they were even
just a few years ago, but Blogger certainly has a tremendous stance in that
space.
Applied
Semantics. Now, you may no know the name of this company, but I
assure you, you know what they do, or what they did before Google acquired
them. Applied Semantics developed two vital pieces of software, one
was Adsense and the other was Keyword. You know them now as Google
Adsense and Google Keyword. Essentially what this is, I mean, this
is some of the foundation for when you're surfing the internet and ads follow
you around or target you based on some of your preferences and some of the
other sites that you visit, that's what these do.
Picasa,
web photo albums, competes with Photobucket, Flickr, etc, and God bless them,
they even have the same colors in their logo as Google, so it was a perfect
match.
Then,
speaking of logos, if you look at October, 2004, that Keyhole logo, if you were
to change the color of it, can you think of what that might be? That
is actually the Google Earth logo. Google kept the logo but changed
the color when they acquired Keyhole. That was the foundation for
Google Earth and much of Google Maps as well.
August,
2005, a small company that was doing a lot of mobile UI, mobile search, and
mobile applications, Google saw something there and I tell you I know they got
their money's worth when they acquired Android, because it is now just on fire
in terms of adoption rate.
One of
the more disputed acquisitions Google
made was for YouTube and I saw disputed because it was, I believe, $1.8
billion, but they have also had to use about $2 billion in legal services
because of all the content creators being the TV media and the private content
creators as well. Everybody has tried to sue YouTube at some point
and Google had to step in and pay for those legal fees. In the end
though, I think this has been a great transaction for
Google. YouTube, the largest video platform on the internet, creates
an enormous amount of impressions, and that's really what Google's core
business is, is those impressions, those viewers.
In
April of 2007, Double Click, the most expensive acquisition to date for Google,
$3.1 billion, I believe it was, and it has certainly paid itself back in
spades. Double Click is the foundation for Google's broad web
advertising platform. That is where Google gets the majority of
their revenue, so Double Click was certainly a good acquisition.
Now,
in July of 2007, Google acquired Grand Central and immediately shut it down to
any more users coming aboard and went quite for basically two
years. They re-launched Grand Central in the middle of about 2009
under the new name Google Voice. Grand Central became Google
Voice. It took them about two years to get all the tweaks and to get
it to Google-ize, so to speak, full integrated with Gmail and a lot of the
Google enterprise services as well. That one has been an excellent
purchase for them.
A
little more recently, Admob made major headlines when Google acquired them,
primarily because of the multiple that Google paid. This was the
highest one, at least reported that we've seen for Google, I think
it was 37.5x TTM. Admob, similar to what I said about Double Click,
was a foundation and platform for the web advertising. Admob is
their platform for mobile advertising. That was a flip of the switch
type transaction, with revenue generating out of there immediately after that
acquisition happened.
I want
to talk about a couple of interesting investments. A lot of people
don't know this, but Google, along with doing a lot of acquisitions, also does
a lot of investments. They tend to be a little bit quieter, but are
each significant in their own right. We remember that for the past
12 to 18 months, there has been so much turmoil between Google and China, with
Google not necessarily agreeing with a lot of the Chinese regulations when it
comes to IP, things from IP and technology all the way through to some of the
human rights things. Back in 2004, that certainly didn't stop them
from investing in Bai Du, they had nearly 3% of that company. Bai Du
went public in 2005, they currently have a $34 billion market
cap. After Google left mainland China, Bai Du's market share
skyrocketed. They were already the leader in searching in China,
Google never did officially take that crown, but Bai Du certainly took off
since Google left China and has re-established themselves in Hong Kong.
Oddly
enough, going with another competitor here, because that's really what it is,
Google also invested in AOL, a $1 billion investment for a 5%
stake. That is why when AOL was still under the control of
Time-Warner, the dark ages, so to speak, I'm not 100% certain they've left the
dark ages, but let's hope so. Especially what this deal did for Google is
give them the right to power AOL's search engine and also gave them a lot of
advertising rights through the AOL portal, so probably a good deal in the long
run.
Let's
move down to the bottom left there. I don't know the exact figure
that Google invested, but we know that they have about a 4% stake in Xunlei,
which is a Shenzhen-based file sharing site, social file sharing, maybe similar
to something more like The Pirate Bay or something along those
lines. It is a heavily traveled site, though, and Google powers their
search engine, sort of a bit torrent, FTP, eDonkey type site, and this one, I
assume with the growth on this company as well, is going to work out very well
for Google in the long run.
Perhaps
one of the more recent investments, and another headline grabber, the exact
amount here is still a bit ambiguous, a bit vague. I've heard
reports of $100 million invested or $200 million. The point is they
have invested a substantial amount in what is the fastest-growing internet
company on the planet, that is Zenga. Zenga's social and casual gaming
network plugs in through Facebook and Myspace, they do stand-alone games as
well. They are making cash hand over foot. The point is
they have been doing a lot of acquisitions themselves and this investment into
them from Google was specifically to help Zenga get the ball rolling to get
them to participate in building out what will be Google Games. We
are expecting that to roll out sometime in the next 12 to 18
months. Certainly a very interesting investment and it will be great
to see how that one pans out.
Some
of our more recent transactions, and again, with 25 transactions to date in
2010, staying on this pace, they will break 30 transactions no problem before
the end of the year, and as they told us specifically, and we will hear this in
just a moment, they do plan to stay on this cycle of intense transactions, this
spree, but just a few of the companies on here, I can't go into too much detail
on all of them, but they acquired reMail. That was a very hot email program
that was built for iOS, Apple's iPhone and iPad, etc. They bought
reMail simply just to shut it down, which I thought was kind of interesting as
it was taking out the competition. Picnik, a Seattle-based company,
actually John (xxx 37:57) was at the WFS with us just a couple of days ago,
very cool guy, this is the second company that he has founded and sold to
Google. He comes up here to Seattle, he starts these companies, and
then he goes back down to the Valley to sell them to Google. Very
interesting guy.
Pump
Top is in the touchscreen space. Labpixies does widgets for mobile
and for web. There is a lot of talent there, but this acquisition
was actually in part due to the geography. They are a Tel Aviv,
Israel based company. A ton of talent in Israel, in fact, pound for pound, the
greatest talent pool in the (xxx 38:48) district. This gave Google
the extra presence they needed to expand into Israel and to tap into that
talent pool.
Simplify
Media, I actually used to use them ages ago when they first came out, this is
essentially a way for you to take your existing music collection and turn it
into a stream that you can run to any mobile device or anything like
that.
Ruba
is an interesting transaction because it was essentially a competitor with
something like Kayak or Orbitz, something like that. Google has not
yet exploited that transaction, it will be interesting to see if they get
seriously into the travel space.
Other
ones on here, Plannr was just acquired, another Seattle-based company, Instantiations
we're going to move on to in just a second, Social Gold as well we'll talk
about in just a second. Blind Type, down there in the bottom right
corner, is a new and more efficient way to use your mobile keyboard.
Let's
jump ahead here. Last month on our webinar we had the announcement
that Google had acquired our client Instantiations. We represented
the seller there, out of Portland, Oregon. As most of you know, the
Corum Group is involved and has been involved in several aspects, on several
different transactions that have occurred with Google. This is our
most recent one and so what we wanted to do, while we were at the WFS, we had
both the buyer, Google, and the seller, Mike Taylor, and we wanted to sit down
with both of them and kind of interview them, grill them a little bit and see
if we couldn't talk a bit about the transaction and how it has worked out for
both of them.
I'm
going to go ahead and start with Tom Duterme, who is with Corp Dev at Google, a
really great guy. He gave me a few minutes of his time. I
was actually hosting his buyer panel for him and then I took him off stage
after the buyer's panel and was able to get a few minutes with him. So, we're
going to play that recording for you right now.
Begin
Recording
Tom
Duterme
Hi, my
name is Tom Duterme, I'm from Google and I work with the Corporate Development
group. I'm here today in Seattle as the Growth and Exit Strategy
conference representing Google.
Q1:
With over 20 deals so far in 2010, how is Google's Corp Dev group able to keep
the pace?
That's
a great question. It is a lot of hard work is really the simple
answer there. We have a fantastic team which is based primarily in
Mountain View, but also with groups in New York and London. Everyone
is kind of working around the clock, these days for sure. We're
excited about the pace of what we've accomplished this year and that is
continuing, certainly for the rest of the year. So, hopefully we'll
get to take a vacation some time, but we're looking forward for the rest of the
year.
Q2: Is
Google focused solely on talent and team acquisitions?
That's
a great question. I think that first and foremost, every deal is
different. Each is unique, obviously. Technology and technical
innovation is extremely important, obviously. It is an important
factor to Google and to the companies that we look at. That would be
number one. Two, in terms of the people and the talent, really what
we're looking at is cultural fit. Google has a very strong and
unique culture and each of these companies has a strong and unique culture as
well. We look at that as the happy marriage and a meld to work well
for both parties, that is incredibly important. That is certainly a
factor in every deal that we look at. We ascribe an importance to
that.
Q3:
How creative is Google's Corp Dev group? Is there Google Formula or
a standard M&A structure?
So
deals can certainly vary, we don't have a cookie cutter
deal. Largely, I think that like a lot of other companies, we look
in terms of consideration portion and also looking at the teams, as you
mentioned before, the line of the company and we need to retain those, so we
have components on both ends. Obviously we do see every deal as very
unique and so it is hard to have a generic rule of thumb on all our
deals. Every deal is uniquely packaged from our perspective, there
is definitely not some special Google formula for making a deal.
Q4:
Who originates deals with Google? Are deals proposed by the product
groups or does Corp Dev bring the deals to the product group?
That's
a great question. Google is a very bottoms-up company, so we get
deals inside the company from really anywhere. Obviously products
and engineering, we're a very engineering-focused company, a lot of potential
deal ideas will come from those partners inside the company, but we also can
get deals from development, from sales, really anyone who has a good idea can
reach out internally to our group. Conversely, we may have ideas ourselves
through our connections, through our knowledge of the community, that we may
filter with our engineering or product partners. So that is a very
organic conversation that happens inside Google.
Dougan
Milne
It was
a pleasure talking with Tom, he's a very sharp fellow. I'm glad we
got to catch up with him after the panel. I'm going to jump ahead
and we're going to go on to Mike Taylor. Obviously we have a very
close relationship with Mike, having worked with him over a number of months in
selling his company Instantiations. There were multiple bidders for
his company and he talks a little bit here in this piece about why he chose
Google. Let's go ahead and roll that and hear what he had to say.
Mike
Taylor
Hi,
I'm Mike Taylor, I'm the CEO of Instantiations and my company was recently
acquired by Google. I'm here in Seattle at the Growth and Exit
Strategies conference to talk about that a little bit and share some of our
experiences.
Q1:
With multiple bidders for Instantiations, what made Google stand out as an
acquirer?
Google,
I would say, was...not that the other companies weren't professional, but
Google has so much experience at acquisitions that they were extremely
professional and organized and they had a core set of values that they approach
the world with that made them much easier to work with that the other companies
that we were seriously talking to. I don't mean that they weren't
tough negotiators, because they were. You can pretty much count on
what they said staying true in the long run. It was a very good
company to deal with and for our company, Google was the top of the
heap. The other companies were excellent companies and we would have
been happy with any of them. Google was the
pinacle. We're very happy with our deal.
Q2:
Instantiations' core product line was immediately made FREE by Google after the
acquisition...was this a surprise? Were there any other surprises
there?
I
don't think there were any surprises in that area. We did know with
quite a bit of a headstart that the product was going to be free, I think that
we didn't realize the full effect of the Google brand and free would have on
the volume of our product since that relaunch. So everybody at
Google, including my team, which is part of Google, are really happy right now,
since the product, which was pretty good volume before, is now up by something
like an order of magnitude increase, which is pretty dramatic.
Q3:
What are your opinions about the Pacific Northwest as a location for building a
software or internet technology startup?
I
think that the Pacific Northwest in general, Portland specifically, if I can
say that, is an excellent place to build a software company. We have
all the quality of life things going for us and honestly one of the core things
in our deal was, literally in the letter of intent, was that our technical team
would not have to relocate out of Portland, because they wouldn't have gone,
even to Google, if they had to move, a number of them, anyway, some of the key
ones. It is a great environment, we have, in the Portland area, Intel,
Tektronix, a really strong technology... and so, to me, Portland I can speak to
for sure, is a great place to build a software company. There are a
lot of software people there. Seattle, I know, second hand is also
quite dynamic, maybe even more so than Portland. Maybe neither one or even the
two together are equal to the Valley, but they are still really good places to
build a software company and honestly recruiting from the Valley these days
isn't nearly as hard as it used to be. Because we have that quality
of life going for us and we have enough of a technology aura that people don't
think they're coming to the backwoods anymore.
Dougan
Milne
We
appreciate the time that Mike had to take for us. Just being
acquired, he's actually even gotten busier, if you can believe
it. Like he said, their software downloads have absolutely taken off
since they were acquired by Google, and I think he used the term order or
magnitude greater and that really has been the case.
Our
last interviewee was Reza Hussein, who started Jambool, and Jambool created the
product of Social Gold. You guys may know Social Gold, it is a
virtual currency company and virtual goods company. It has been a
pretty serious acquisition for Google. You remember just a few moments ago, I
was talking about the investment they made in Zynga, and this whole social
casual gaming phenomenon, a lot of the big companies out there believe that
there is a lot of money to be made in this space and certainly Zynga and
Facebook together have been proving that is absolutely true. This
acquisition is an interesting one and we'll go head and hear from Reza now.
Brought to you by Corums M&A advisors