Grande Ecole Majeure Finance – Master in International Finance Master’s Thesis Acquiring technology companies: Are Google, Amazon, Facebook, Apple and Microsoft (GAFAM) more successful than non-tech bidders? Authors: Giacomo Genzini Simona Kepalaitė Supervisor: Prof. Aram Attar Paris, June 2018 ABSTRACT In this paper, we compare the relative success of Google, Amazon, Facebook, Apple and Microsoft (GAFAM) on one hand, and a range of non-technology companies on the other hand, when acquiring technology targets. We develop a comprehensive definition of technology companies as well as a measure of success for this specific type of acquisition and provide both qualitative and quantitative analyses on a proprietary database covering over 700 deals. We find that – in principle – GAFAM enjoy a small relative advantage, but that its role in predicting success is limited . Instead, we identify four specific factors on which successful technology firm acquisitions depend – regardless of the nature of the acquirer – and we discuss how each may favour GAFAM or traditional buyers. Additional research would be necessary to establish whether these factors also apply to situations in which technology companies acquire non-technology targets. 2 ACKNOWLEDGEMENTS Firstly, we would like to express our gratitude to our alma mater – HEC Paris – without whose education and resources our research would have been much more limited and less insightful. Secondly, we would also like to thank our supervising professor Aram Attar for first suggesting such an interesting research topic and for pointing us in the right direction on multiple occasions. We are also thankful to our friends and families for their support and understanding when we chose to dedicate our time to this research. Lastly, we would like to thank each other for the fruitful collaboration that lead to the completion of this research. 3 TABLE OF CONTENTS ABSTRACT ................................................................................................................................................................... 2 ACKNOWLEDGEMENTS ............................................................................................................................................... 3 TABLE OF CONTENTS ................................................................................................................................................... 4 TABLE OF FIGURES ........................................................................................................................................................ 5 TABLE OF TABLES ......................................................................................................................................................... 6 TABLE OF APPENDICES ................................................................................................................................................... 6 INTRODUCTION ........................................................................................................................................................... 7 SECTION 1 – THE STARTING POINT .............................................................................................................................. 9 DEFINITIONS – WHAT MAKES A TECH COMPANY .................................................................................................................. 9 LITERATURE REVIEW ................................................................................................................................................... 10 DEFINING “TECH” ...................................................................................................................................................... 11 M&A PROFILES OF GAFAM ........................................................................................................................................ 13 M&A Profile – Google ........................................................................................................................................ 14 M&A Profile – Amazon ...................................................................................................................................... 15 M&A Profile – Facebook .................................................................................................................................... 16 M&A Profile – Apple .......................................................................................................................................... 17 M&A Profile – Microsoft .................................................................................................................................... 18 DEFINING SUCCESS ..................................................................................................................................................... 19 SECTION 2 – GAFAM M&A: QUALITATIVE CASE STUDIES........................................................................................... 21 ENTERING NEW GEOGRAPHIES – AMAZON’S MARKETPLACES ................................................................................................. 21 THE MOBILE OPPORTUNITY – HOW DID GAFAM APPROACH IT? ............................................................................................ 22 ADVERTISERS FIRST? – HOW GAFAM MAKE MONEY .......................................................................................................... 25 GAFAM RAISING THEIR VOICE – THE ORIGINS OF ALEXA, CORTANA, SIRI AND GOOGLE ASSISTANT ................................................ 30 NOT THE FIRST BUT THE BEST – GOOGLE MAPS .................................................................................................................. 32 CATCHING UP IN THE MAPPING SPACE – APPLE MAPS .......................................................................................................... 35 STUCK SOMEWHERE IN BETWEEN – MICROSOFT AND YAMMER .............................................................................................. 37 IF YOU CANNOT BUY IT, COPY IT – FACEBOOK AND SNAPCHAT ................................................................................................ 38 SPENDING $500 MILLION TO SHUT DOWN A COMPANY – PRE-EMPTIVE BUYING IN THE AGE OF E-COMMERCE .................................... 40 SECTION 3 – WHY AND HOW DO NON-TECH COMPANIES ACQUIRE TECH COMPANIES? ........................................... 42 SECTION 4 – NON-TECH TECH CASE STUDIES ............................................................................................................. 44 THE FINANCIAL SECTOR ............................................................................................................................................... 44 RETAIL..................................................................................................................................................................... 45 MEDIA AND NEWS ..................................................................................................................................................... 46 AUTOMOTIVE ............................................................................................................................................................ 47 SPORTSWEAR ............................................................................................................................................................ 50 SECTION 5 – TECH M&A: QUANTITATIVE ANALYSIS .................................................................................................. 52 DATABASES .............................................................................................................................................................. 52 4 THE ANALYSES........................................................................................................................................................... 53 Descriptive Analyses .......................................................................................................................................... 53 Success Analysis ................................................................................................................................................ 68 SECTION 6 – ARE GAFAM BETTER TECH ACQUIRERS THAN COMPANIES IN TRADITIONAL SECTORS? ........................ 73 STRATEGIC FIT ........................................................................................................................................................... 73 POST-MERGER INTEGRATION ........................................................................................................................................ 74 LONG-TERM COMMITMENT AND TALENT APPRECIATION ..................................................................................................... 75 ITERATION – PRACTICE MAKES PERFECT ........................................................................................................................... 75 SECTION 7 – SUMMARY AND CONCLUSIONS ............................................................................................................. 78 REFERENCES .......................................................................................................................................................... LXXX SUPPORTING APPENDICES ...................................................................................................................................... XCII Table of Figures Figure 1. Google Map's