Thursday, September 8, 2011

Google's Best Acquisition Deal Ever

Today, Google announced it had acquired Zagat the restaurant rating and review service. The amount of the purchase was not disclosed, due to the fact Zagat is a private company.

However, it is safe to estimate that Zagat probably went for $500M to $1B. Using the fact that Google offered $500M for Yelp who had less revenue but more growth potential in 2009.

Acquisitions are already exciting, because investors gain key insights into the future of the acquiring business and can then begin to analyze the deal, future implications, and resulting impacts.

However, the Zagat deal is extra exciting. It is a once-in-a-blue-moon kind of deal. The unicorn of mergers and acquisitions. Why?

1) Very rarely will a giant company acquire a niche company that doesn't operate anywhere near its industry. Zagat has hardly any online presence, and probably doesn't make a significant amount of money from their online business.

2) Companies hardly ever acquire small companies that will require them to enter very new industries. Google is now going to be responsible for creating unique, original content. Google is also going to have to begin print publishing and merge print publishing with online content profitability.

3) A national company tries to get smaller. Millions of restaurants advertise with Google, and now Google is going to have exposure to small local restaurants.

The Google acquisition of Zagat is so out-of-the-box, not compatible, no synergies type of acquisition that it is actually going to be great.

Google is now venturing into content creation. A very large aspect of the online world, that Google has avoided till now. Success and learning curve advancement will lead to more acquisitions and more growth in this arena. Although content creation is highly competitive, Google can get that content out easier than any other site.

Google is also getting away from the Internet. This is scary. Google making print books, and I thought they were going to scan every book in the world. Although, the printed versions of Zagat will change drastically again Google is going to do what no newspaper has been able to do. Take a print publication, and make it way more profitable online.

Finally, going local is like arteries leading to capillaries. Google is growing capillaries, it can now feed the blood to the smallest of cells. Being able to do this goes beyond large organization to super organization.

Just to recap, Zagat is forcing Google out of its comfort zone on several fronts. And each front is going to make Google grow into a new area that will be very lucrative and profitable for the company.

Great move Google, I believe again.

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