Corporate Business Development: Apple v. Google

George T. Geis, UCLA AndersonBocconi University

September 13, 2012

I would like to acknowledge Debadutta Bhattacharyya and Ahreum Hong for research collaboration on this project.

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• Two of the great technology companies over the past decade have demonstrated vastly different styles when it comes to merger and acquisition activity.

• I’ll discuss significant differences between Apple and Google in the numbers, types and patterns of corporate business development transactions.

• I’ll also suggest how M&A and other business development activity for both companies might change in the future.

v.

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M&A transactions since 2001 Apple Google

Year Number2001 12002 02003 42004 52005 62006 92007 142008 32009 72010 302011 322012 (as of 8/31) 7Total 118

Year Number2001 22002 22003 02004 02005 12006 22007 02008 12009 12010 42011 12012 (as of 8/31) 3Total 17

Source: Capital IQ (Note: Capital IQ lists most, but not all transactions)

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Google M&A infographic (2010)

Source: http://www.trivergence.com/market.asp?MarketID=4087

Apple M&A-related infographic (2010)

Source: http://www.trivergence.com/market.asp?MarketID=4089

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MIT sector classification scheme• We analyzed M&A activity from 2005-2011 for Apple and Google,

classifying each transaction within a Media-Internet-Technology (MIT) sector scheme

• Media includes sub-sectors such as advertising, broadcasting, cable and online media

• Internet includes sub-sectors such as internet community, internet retail, search engine software and web analytics

• Technology platform includes sub-sectors such as application software, components, semiconductors, smartphones, systems software

• Unlike traditional industrial classification schemes, this scheme accommodates recent market trends.

• Starting from different core sectors, Apple and Google have used M&A to help expand offerings and position themselves within a converging MIT universe.

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Apple’s M&A activity: “MIT” sector classification

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Apple’s acquisitions since 2001 infographic

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Apple pattern: M&A to obtain components that enhance products

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Apple business development related to iPod launch (M&A = 0)

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Google’s M&A activity: “MIT” sector classification

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Synergy• We’re familiar with the notion (all too often fanciful) of M&A

synergy -- 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, cross-selling of companies’ products, or effective integration across an industry value chain.

• 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.

• 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.

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Ecosystem synergy

• Consider what can be a potentially richer form of M&A synergy, given that evidence exists that initiation of a series of acquisitions as part of a strategic M&A program is associated with value creation.

• Ecosystem synergy exists where target acquisitions have synergy with each other and not only directly 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 synergies with Acquirer.

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A Google M&A pattern: ecosystem synergy

Example: Google has engaged in a series of advertising-related acquisitions that have helped the company cover the value chain of advertising. 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), which also interacts with a supply side platform (Admeld), finally reaching users through services such as YouTube. In addition, the AdMob acquisition provided Google with one of the largest mobile advertising networks.

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Apple/Google head-to-head competition

Source: http://www.trivergence.com/market.asp?MarketID=4090

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Future M&A• Apple >$100B cash on its balance sheet; revenue CAGR for past

three years = 42%• M&A likely to become an increasingly important part of Apple’s

business development initiatives• Bi-lateral (Apple/Google) bidding wars in competitive spaces

such as:– Mobile communications– Smartphone/device functionality– Mobile advertising– Local search– Media cloud services– Major media content

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Ongoing research questions

1. How visualization technology can support pattern recognition in complex spaces such as MIT

– Illustration: dynamic infographic for Mapping and Imaging sector

2. Parsing of unstructured data (such as press releases) into structured M&A-related databases– Commercial products such as Autonomy vs. self-developed

classification algorithms

3. Building a dataset for analyzing connections between areas such as MIT revenue growth & M&A activity– Sample framework