Late last week, it looked as though Google (GOOG) would buy local shopping coupon site Groupon for upwards of $6 billion. And then, even later last week, the deal collapsed.
The major factor seems to have been Groupon's decision to stay independent and, perhaps, eventually file for an IPO. And in a great irony, Google's desire to buy the company, manifested in a ten-figure deal, may have tipped the scale of Groupon's decision in an interesting case study of negotiation.
Groupon's positionAs Melissa Harris of the Chicago Tribune noted in her story that broke the news of the deal being off, many of the investors and board members of Groupon don't suffer from business naivetÃ©. Initial investor Eric Lefkofsky is well experienced. He has already brought two companies public. With Brad Keywell, a friend from law school who is listed as a Groupon founder, he started or invested in 14 businesses since the mid 1990s, all but two of which still exist. Other investors include former R.R. Donnelley & Sons CEO John Walter and venture capital firm New Enterprise Associates.
As with any potential acquisition, founders can get concerned over what will happen to their "baby":
Groupon Chief Executive Officer Andrew Mason, who started the company in 2008, had concerns about the strategic direction it would take under new management and what could happen to his employees if he sold to Google, according to a person familiar with the matter, who declined to be identified because the discussions were private.The founders and investors also believed in the company. They thought it had a future, with or without a Google purchase. With 35 million users in 300 markets, a chance at more than $500 million in revenue this year, and having been profitable eight months in, you can see their rationale. Any decision to sell would have to balance the potential gain against what the company and those involved might lose.
Desperate GoogleMy BNET colleague Jim Edwards thought that Google was only interested in Groupon to fend off Facebook. I would agree. Facebook threatens Google in a number of ways:
- Google has already begun paying astronomical retention bonuses to keep key employees from going to work for Facebook.
- Existing and new Facebook services are a strong competitor to Google.
- Google, which needs consumer information to survive, has been completely stymied in trying to get the treasure trove of information on which Facebook sits
- Because Facebook requires people to log in under their own names, the user information provides a natural ability to provide an outlet for local advertising. Because users of Google's search engine don't have to log in, there are big sources of revenue that aren't squarely in the company's grasp.
A deal too good to takeIf there were any doubt about how badly Google wanted Groupon, the proffered price should erase that -- especially as it reportedly jumped from an initial $2.5 billion to $6 billion, including a $700 million earnout. That makes the fevered race between HP (HPQ) and Dell (DELL) for 3PAR look cheap.
If Groupon had looked for nothing but money, it's unlikely that the talks would be over. But Google, driven as it is by numbers and an analytic culture, probably didn't understand Groupon's other considerations.
In that case, pushing on money that heavily could well have put off Groupon's management and board.It could have sent the signal that Google was trying to get the founders to ignore their concerns about strategy and employees and just take the check.
Simultaneously, the offer might have reinforced Groupon management's sense of what the company could be worth in the long run. And so, Google may have just bid itself up and out of the deal.
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