Ben and David go inside the M&A press with Bloomberg's technology M&A reporter and host of the Deal of the Week Podcast, Alex Sherman. If you've ever wondered how stories about big deals get broken or what "according to people familiar with the matter" really means, tune in for the behind-the-scenes scoop!
Note: A technical glitch with our recording setup created occasional short silences between Alex's comments and Ben & David's. It shouldn't impact listenability, but we apologize for the awkward pauses!
Topics covered include:
The Carve Out:
Full Transcript below: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
Ben: Welcome to Episode 21 of Acquired, the podcast where we talk about technology acquisitions. I’m Ben Gilbert.
David: I’m David Rosenthal.
Ben: And we are your hosts. Today is a special episode where we yet again break the mould and do a little bit of experimenting of our own here at Acquired. We are covering the press perspective of mergers and acquisitions, and we have a special guest with us, Alex Sherman from Bloomberg. He’s based out of their New York headquarters and is the host of the great Deal of the Week podcast. He started at Bloomberg in 2008 as an intern out of graduate school and has worked in a variety of roles and covered a number of beats since then.
Thanks so much, Alex, for joining us and welcome to the show.
Alex: Thanks for having me.
David: We are excited to have you here and especially as a former employee of the media industry myself a number of years ago now, I’m really looking forward to this one. I think we’re going to have a great time talking about the press and how you guys cover deals, your business model, and how it all relates to tech and acquisitions. So, thanks again for joining us.
Alex: Absolutely. It’s nice to be on this side of the table instead of the host of the podcast which I’m used to, put my answer in questions –
David: You’re getting the questions posed to you.
Alex: Yeah. You’ll see as the course of this goes around, I may end up being like just interviewing you guys for a force of habit.
David: Our listeners can then see the tables turned.
Ben: For our listeners out there, we wanted to do this episode. We were talking with Alex about what would be a right way to kind of like work together on something or have Alex be on an episode and as we were talking, we realized there’s this totally fascinating process of the new cycle of M&A and why we read about stories when we do and how that whole process works that was really not something I had thought about even after doing 20 episodes of this podcast. So, we thought it would be a cool idea to have Alex on and clue everyone in on the process.
David: Yeah. So before we get kick off, we're going to abandon our traditional structure for this show and do it as a special episode, but I want to sneak in a little bit of history and facts about Bloomberg because I bet a lot of our listeners may consume Bloomberg media but don’t really know much about the company other than Michael Bloomberg, former mayor of New York, was the founder. But it’s interesting.
So Bloomberg actually I think might be like the largest technology company that nobody really thinks about or talks about too much because people think about it as a media company. But it actually is, at its heart and its origins, a technology company. So it was founded in 1981 by Michael Bloomberg. Michael had been a partner at Salomon Brothers which was an investment bank on Wall Street. Salomon Brothers got acquired in either ’80 or ’81 by an entity that was rolling up banks and eventually became Citi Group.
As part of that acquisition, Michael as a partner made $10 million in the acquisition. And he used that money, turned around, he started a company called Innovative Market Systems (IMS).
Ben: Not quite as catchy but definitely a little bit less self-serving.
David: Fortunately for the brand, a couple of years later, just changed the name to Bloomberg. In 1983, so a couple of years later, Merrill Lynch, another large investment bank actually invested $30 million in the company for a 30% stake and then ultimately when Merrill got bought by B of A during a financial crisis in 2008, Bloomberg bought that stake back from Merrill.
But the core business of Bloomberg is actually this thing called terminals which, Alex, you probably use every day and many consumers of Bloomberg media use.
Alex: I do. I just don’t have to spend the $25,000 a year per user fee that everybody else does.
David: Exactly. Terminals are, this was kind of like the WhatsApp or maybe Snapchat, more like the WhatsApp for traders, for Wall Street long before the smartphone or WhatsApp or AOL or anything like that. It’s the communications platform for Wall Street and basically everybody uses it today.
Ben: For our listeners out there that do you use this, sorry for butchering the explanation of what it is and for the listeners that don’t, it’s this total black hole for people that aren’t in the industry, that actually it’s Bloomberg branded hardware and you pay an annual fee and it hooks up to a service and it has all this software installed. It’s on your desk and it’s your kind of core operating, you know, it’s the operating system on which you work.
David: You make trades on the platform. You communicate with other traders on the platform. You can run all sorts of data and analytics on stocks, on companies, on markets. It’s very, very cool. And Alex was alluding to, it’s also quite expensive. When you’re selling to clients that have a lot of money, they’re willing to pay a lot.
It’s interesting, you know, and we’ll get into the show here, but in recent years Bloomberg has evolved and started doing radio which is now podcasts like Alex’s Deal of the Week; and television and TV channels, news. There are about 2000+ editors and reporters at Bloomberg that Alex is part of that organization. But the terminals, subscribers to the terminals, as Alex was alluding to, pay about $25,000 a year per terminal. And they are in the neighborhood of half a million people that do that which makes Bloomberg quite a large company.
Ben: Yeah, it’s really interesting to think about there’s all these, you know, we’ve talked about the changing dynamics in the media industry at a lot of these different episodes. It’s primarily because the way that most publications work is just selling ads and that’s their main revenue model. There’s subscription, there’s paywalls, there’s all these other things. But, you know, with Bloomberg they produce all this media but the core business is one with network effects, one that’s based on technology, one that’s essential for people to do their job and it's not monetizing the ads on the publications. There’s a little bit of that too because, you know, it’s a decent business but certainly not compared to selling terminals.
David: So with that, Alex, with that long preamble, what’s your perspective on all that being at Bloomberg, at this company, but also being a journalist and a reporter and a M&A reporter, how does that play out for you?
Alex: So I started at Bloomberg, as you mentioned, as an intern in January of 2008. I have sort of without revealing the who, what, or when, I’d say I’ve had interviews with virtually every single competitor of Bloomberg since then at one point or another to change jobs or because just someone was interested in meeting me. And I’ve never left. And there’s a reason for that.
The main reason is what you just described. And this has been the case since I joined the company. Bloomberg is in financial shape than all of our competitors. So it has been hard for me to rationalize why I would go work at, say, a newspaper which really struggles financially and lives on advertisement, when our entire operation is you could say subsidized by the Bloomberg terminal business which does $9 billion a year in revenue and it’s not ad-supported.
Ad-supported businesses unless you’re Google or Facebook are by and large not good. You don’t have to look very far. Even digital media companies that have decent valuations really struggle and nothing is near this size of Bloomberg.
So, what I have tried to do at Bloomberg is to try to figure out what can I do to provide value here to the core business, not just some sort of ancillary side project. Because you mentioned Bloomberg has business week, we have a TV station, we have a radio station, we have podcasts, but in the end, if you’re not serving the core function of this business, you’re not essential to this business.
So whatever I did here, I wanted to make sure that I was providing value to maybe both the common user and the terminal user. And covering M&A I think is very central to that function because M&A stories move markets a lot more than almost any other story. If we can break a deal, if we can say this company is in talks to buy, you know, Company X is in talks to buy Company Y, the stocks and bonds are going to move for those companies, the prices are going to move.
And it therefore makes it worthwhile for you to spend $25,000 a year to buy a Bloomberg terminal if you’re trading on this information. One very important note that your listeners should know is that Bloomberg terminal customers get our news 15 minutes before the rest of the world gets it. It’s basically a built-in paywall.
David: Oh, wow. I didn’t realize that.
Alex: That’s right. If you’re a terminal subscriber, you have access to this information first. Now, a lot of that, that advantage –
David: And if you have a hedge fund and you’re trading the market, you know, and Alex breaks a story about a potential merger like that, that pays for itself, literally the $25,000 a year pays for itself in seconds.
Ben: Yeah. Well, 15 minutes is an eternity.
Alex: It comes in the sales pitch. There’s no question that some of our biggest scoops while we try to sell customers terminals, we say, “Look, we broke this deal. Six billion dollars in market value was created instantly and you would have missed it if you don't have a Bloomberg terminal.” What I will say though, and this is very important toward the future of this business, is that that 15-minute delay has eroded because of social media and in essence, TV. So what has happened is you still don’t get the story first, but as soon as we hit headlines, it goes on Bloomberg TV, so we have it virtually instantly. In other words, we’ve sort cannibalized ourselves that way. And of course, anyone that has a Bloomberg terminal can then tweet the headline.
So, we realized that we live in a world now where the 15-minute delay is a little bit anachronistic. It still exists but it's something that’s discussed to you internally almost all the time, like do we want to change this, do we still want to keep it, so far we’ve decided as an organization that there’s still value in this so we do keep it.
But Twitter and other forms of media have certainly put this 15-minute delay in a different category now and I think we’re okay with it because honestly, so much of the trading is algorithmic that the money is made instantly. So really, you just need to be first. And as long as you’re .0001 seconds first, you've paid it off. After that point, when the stock jumps and everything’s programmed in there, it’s much less important.
David: That’s exactly where I was going to go. I mean, it’s super interesting how that’s evolved. It reminds me a little bit of when I was at the Wall Street Journal, you know. Our debate was famously the WSJ.com had a paywall in an era when very few news organizations did on the internet. But that’s like if you’re talking about access to a story when all that matters is the news, that’s totally different from this situation. And I was going to ask, as a reporter now and when you’re covering an M&A acquisition, when it is all about that data that’s going to feed the algorithmic traders, does Bloomberg now and do you as you’re rating stories set up data feeds that come out when you break the story?
Alex: So, we deal with this in different ways. So we know that there is going to be a reaction given our stories. There are ways within the Bloomberg terminal that we can actually somewhat manipulate the reaction and it becomes incumbent upon us to do this responsibly. So the most telling way that I can explain this is that our biggest stories are redheaded. They’re literally red on their terminal. So there’s a scrolling set of headlines at the bottom of your terminal that are constantly going by. The biggest stories are highlighted in red.
So if we break a news story and we redhead it, there’s almost always a massive jump in the stocks and that I would imagine has to do with algorithms from traders that are set up however they do it to be coded where if something is redheaded, then the stocks move. So we will purposefully not redhead stories where we don’t actually want to generate an enormous market reaction if maybe the story is more nuanced.
So, you know, if let’s say a company might be considering buying another company but they haven’t entered formal talks yet or something like that, we want to make sure that we emphasize the nuance there. So maybe that particular M&A deal is not as advanced as we would maybe want one to be; or maybe here’s another example, that talks have happened and ended and are now dead and it’s not alive.
Ben: For example, you wouldn’t redhead something about Apple to probably buy McLaren.
Alex: That’s right. In fact, we did not redhead that story because we did write sort of a version of it after the FT print out their story. And yes, we did not redhead that story. Although let me put it this way. And this is something that we do as sort of a service to our clients. When the FT ran that story, their headline was redheaded. So we did redhead their headline because the people that made that decision thought that that was an important enough headline and the FT is of a stature where we have decided that Bloomberg, that they’re right almost all the time. So we’ve given certain media organizations – the FT, the New York Times, CNBC, The Wall Street Journal – the benefit of the doubt that we know that their track record is good enough that even if they beat us to a story, we typically will alert our clients to that fact.
David: It’s interesting. It’s almost like even at that point, this is what’s so fascinating about how markets work. The news, you guys may have decided not to redhead or not to run a story about that potential acquisition but once that news is out there, that impacts their market. So, redheading the news, the news that the rumor is out there is super relevant to your customers.
Alex: David, you hit on something that we talk about all the time here as reporters, which is if we get beat on a story, how much do we then have to react to somebody else’s story? In other words, this wasn’t news a minute ago and we didn’t feel. But now that the news is out there, all of a sudden things are baked into the stock price. So is it worth it for us to negate somebody else’s story just to have the stock price come down. You know, sometimes the answer to that is a yes and sometimes the answer to that is no and just let it be and sort of let the fact that Bloomberg didn’t match the story speak on its own as look, we weren’t able to confirm this. So we’re not really in the business of slamming other people’s erroneous reports but sometimes it is sort of necessary to do that if the market has moved one way or another.
Ben: Right. It’s interesting that your incentives are kind of the opposite. I mean, a lot of publications these days, the incentives are around page views and their CPMs. And what they want to do is make something seem splashier than it is so they get more attention. For you guys, you don't want to be the boy that cried wolf and you have a responsibility to your paying customers to deliver to them what you believe is the most accurate representation of the news. So you actually have an incentive not to downplay things but certainly to play them accurately. And if others are overplaying them, then you might be incentivized to give your customers the kind of edge by making sure to downplay it just to negate the overhyping.
Alex: Absolutely. Which actually I think makes this place sort of a good place to work because you don’t get caught in that game. You can sort of feel good about yourself when you go home at night that your sole obligation is to just be as right as possible.
David: Your incentives are aligned with the truth.
Alex: Absolutely. And that helps a lot when we cover M&A because I am reliant on people that are directly involved in these transactions to give me the information to put out these stories. In other words, we can hear all sorts of information from indirect sources, maybe they’re bankers that aren’t working on a deal or maybe they’re rival executives, or maybe they’re ex-board members, or maybe they’re friends of an executive, or maybe they’re traders who have a financial incentive on their own.
Well, none of those sources are good enough for us to publish something on it because they’re not direct. So when Bloomberg runs a story, as someone who reads it you can be certain of the fact that this is not indirect information. There have been a number of cases where I have put out a story and it’s happened to be the day before earnings or something like that.
There’s a company called Synaptics which is based in California. It was a takeover target for a Chinese conglomerate for about 9 months. And I’ve put out a series of stories basically that said the Chinese conglomerate is interested, they’re interested in this price, they’ve done due diligence, they’ve lowered it to this price, they’re still talks. Then eventually the thing died and it was a whole life cycle story of interested, lowered price, thing over. There were four stories all along the way. And I was the only one that reported it. For whatever reason, no one matched this story. But I knew who my sources were and they’re directly intimately involved in the process. So from both sides, not just one side, so no one has an incentive to lie here. And that also should be pointed out that we have to get both sides sourcing in order to run a story, to be comfortable with the fact that it’s right. So everyone is given a chance to sort of weigh in here before we publish things.
Alex: I got a number of emails from traders saying “You’re being played, you’re being manipulated here. No one else is matching these stories. Someone is playing you to manipulate the stock and make money off it.” But of course, I know who’s doing this and I mean, there’s no way. We’d all go to jail and it’s just not their job to do that. So it’s one of those things that I sort of have to explain to people like no, you don’t understand the way Bloomberg sourcing is done. I’m not getting this information from traders, it doesn’t work that way.
David: So across the industry, this is great transition to kind of the other thing we wanted to talk – One of the several things we wanted to talk about is, what are the nuts and bolts of how this works? So is that standard across the industry or is that unique to Bloomberg that you need and is it for you to feel comfortable going with a story that you have direct sources from both sides of a deal, is that your standard and is that standard across the industry?
Alex: In general, that is the standard. There can be exceptions if we know something is really in hot pursuit and we know the Wall Street Journal is chasing it and we know the Financial Times is chasing it. There are certain times where if we are so certain of one side of the source, let’s say it’s the CEO of a company that we’ve gotten to tell us something on background, all this stuff by the way, it’s never on the record. It’s all anonymously sourced. So, the whole job is based on relationships with people. So if we have an existing relationship with a CEO or the chairman of the board of a company and they’ve told us something, at that point, what we’ll probably do is we still will reach out to the other side to say we’re running this. But we may only give them a very short amount of time to sort of get back to us before –
David: To comment.
Alex: Right. Like at least give them the chance to say no comment and then basically what we’ll say is all right, we’ve given them the chance, they didn’t waive us off the story. We know our other source is so strong here, that will go with it. In those cases you will see some stories that we run attributed to just a person familiar with the matter. But everything else will be attributed to people familiar with the matter. By and large that means that people on both sides have weighed in.
David: That means both sides. Interesting. Wow. That’s so cool.
Ben: Yeah, I had no idea.
David: These are the words that, like, we read a lot of these articles given what we do on this show. I think probably if you’re not in the industry, like eyes just gloss right over that, what does that mean, but coded in that language are these indications about what the genesis of the story is.
Alex: So, I’ll give you a little bit more. There’s a lot of inside baseball things that you would never know to look for unless you’re talking to a reporter. You can sometimes glean where the information is coming from based on who the reporter is. So, people that cover M&A, you have to look up what these people do and what their jobs are.
So, on a given story there maybe three bylines. The first byline is typically where the main information has come from. Almost all major news organizations does this. So the person with the first byline usually has gotten the critical or maybe the first piece of information to kick off a scoop. This is based purely on fresh news scoops. Well, sometimes on a deal, reporter #1 is let’s say, the activist investor reporter. So you know that the information came from the activist because otherwise, that person wouldn’t be on the story. In other cases, maybe the first byline is, let’s say, Verizon just bought Yahoo. Well, we have a different Verizon reporter than a Yahoo reporter. Same with the Wall Street Journal. Same with Reuters. Take a look at who the first byline is. If the first byline is that Yahoo reporter, then the main information came from Yahoo or someone involved with Yahoo. So then maybe the last byline is the Verizon reporter. Then you could say, “All right, well then that person probably just called Verizon to check up on that the information from the Yahoo site was right.”
So you can sort of figure out where the information came from. It’s not always a leak though which is very important I think for people. We’re not talking about strategic leaks all the time. And we actually talk about this. If you go to Episode 7 of my Deal of the Week podcast, I talk about this with the other two M&A reporters at Bloomberg. A lot of the information simply comes from what I would say to some degree is coincidence, which is I have been trying to get a meeting with a person for weeks or months and finally, this person has said yes. So I have lunch or coffee with them and I’m able to ask the right questions to the right person to get information. Then I come back to the office. Well maybe it’s 7 at night at that point and we’ve made a decision at Bloomberg, “This story is not so important that it needs to go out at 7 at night. We’ll put it out tomorrow.” So then the story goes out tomorrow but, like, I had to have some sort of parent-teacher conference with my kid in the morning. So the story eventually goes out at like 3:00 in the afternoon.
Well, there’s no strategy to that. But I think a lot of people read in and in fact you see it all the time on Twitter after stories I’ve broke in. Why did this story come out when it did? Like, there is way less into that than you think almost all the time. Like, the story went out when it did because like I got around to writing it when I did and I met with the right person at the right time. I would say 80% of the stories fall into that bucket and 20% of the stories fall into there’s some sort of reason for why the story is going out right now.
David: Interesting. From your perspective, generally, do the players in the stories understand all of this coded language as well? Let’s take Yahoo and Verizon, for example, which I know you spent a ton of time on that story. Byline comes out and say on one of the pieces of information, let’s say it’s a critical story. The Verizon reporters notice first in the byline. Do people then at Yahoo then understand that means that okay, like this information is probably coming from Verizon? Or is this kind of, you know, the backroom baseball?
Alex: So it depends on who at Yahoo you’re talking about. So your general CEO or CFO or board member has no idea, by and large. So they rely on their own internal media relations or in the case of an M&A deal, they actually hire outside PR firms. These people absolutely know. In fact, many of them are former journalists. So they are hired specifically to help companies figure out (A) where the information is coming from, and then (B) to sort of craft the story and to work with reporters. So, all the M&A reporters know the major external PR firms that are hired on deals very well. We speak to them all the time. So, the companies are called – there’s one that’s called Brunswick, there’s one that’s called Sard Verbinnen, there’s one that’s called Joele Frank, there’s one that’s called Abernathy MacGregor. There’s a handful of other ones, but those are the major ones, that are hired specifically to deal with M&A transactions.
So when one company decides it’s going to sell itself or is engaged in a sales process, they then hire one of these external firms and sort of the PR at that point is then pushed in their direction. In many cases, you actually stop dealing with the company directly and then you sort of start dealing with the PR firm.
So for instance, in Yahoo’s case, Yahoo had a preexisting relationship with Brunswick. But a lot of the communication, you know, trying to figure out if stuff was right or not ends up going through Brunswick rather than Yahoo. The Yahoo internal PR system also is still a method of getting at what information is right and wrong, and they were certainly still involved in that process. But it really does depend on how sophisticated the company is whether or not they keep the PR internally or sort of handed off externally.
Ben: That’s really interesting. It sort of leaves me to start thinking about your week and your day. How do you decide what you’re going to chase down and when you’re going to do sort of long lead things where you should be aggressively trying to get this lunch or this coffee set up? And how do you decide, hey, this is the panic button? And then in terms of amount of media created, like how many stories do you write a week? You do one podcast a week. What’s the total amount of media that you create?
Alex: So on a given week, I’d say I probably write two to three stories on average. There’s certainly no quota for that. In terms of what I’m focusing on, I have a “chase list” that I keep for myself that is built on sort of a running list of tips that I’ve gotten from everyone I speak with. So that runs the gamut of company executives, company corporate development type people, bankers, lawyers, board members, consultants that are hired by some of these companies, private equity firms, PR people. I’m sure there’s a few other people that are in there in that mix and all. But those are the general people that I’m meeting with that are at the level that they’d actually know sort of what’s going on. That’s sort of my rotating cast of characters that I’m meeting with on a given day.
Then, when I have to sort of narrow in on something, so you know, sometimes these sales processes I’m coming up with purely out of the blue, and so nothing had been reported on this and then suddenly I’m able to break a story and now there’s a whole circus around it. So, one of the stories I broke was Verizon actually had started talks and was interested in buying AOL. So this was before the Yahoo thing. So that was a story that’s sort of there was no narrative around that. And then my colleague, Scott Moritz, and I wrote that story. And now all of a sudden it's sort of out there, so now everyone’s chasing it.
For the Yahoo story, Yahoo eventually decided they would go public with that and sort of admitted that they were going to sell the company. So then the whole world is on the Yahoo story. So then it becomes very high profile for me, to answer your question about what to chase. Because now I know that that is going to be a really competitive story and I know that Yahoo is a big enough company that everybody is going to care about that. So I’m going to pay more attention to breaking a Yahoo story than any of the sort of deals of lesser significance, either by name recognition or by size that may come along that’s still sort of technically under my umbrella beat of all technology media and telecom companies which might be at Bloomberg.
I may let a $3 or $4 billion deal pass without really chasing it if I’m close to breaking some news even if it’s just incremental news on Yahoo because I know that’s going to get a lot more readership and it’s going to get a lot more attention both internally and externally.
Now, beyond name recognition, the other general metric I use is size. So, I’m trying to, you know, at Bloomberg we sort of pride ourselves on breaking the biggest deals. So, if I can break a $15 billion deal, that’s going to be a lot more important to me than breaking a $1 billion deal. And really, we don’t even pay attention to deals that are under $1 billion unless they come with some big name recognition. So maybe a company used to be worth a lot more and now they aren’t anymore, or for some other reason, a lot of people happen to know this company because they’re consumer-facing or whatever it may be.
Ben: So you’re saying if we’ve got some small M&A that we want to sweep under the rug, just wait until Verizon’s going to pull an acquisition and then do it then?
Alex: Yes, exactly. That’s exactly what I’m saying.
David: Wait until Verizon’s going to do an acquisition on a Friday and then do it on a Friday.
Ben: Right. Taking out the trash.
Ben: This leads to a point that David and I have been talking about since kind of a couple of years ago before we were doing Acquired and we were thinking about if we were going to do a podcast, maybe this would be an interesting area to go after because it sure seems like nobody talks about these deals after they’re done. People talk about them when they’re announced, people talk about them when they close. But there’s never this retrospective or like did that actually go well, or trying to understand what trends can we extrapolate from these deals that have gone well and then hence us starting this podcast. Why is that, in your opinion? Like why do we not see this sort of coverage later on beyond just the fact that that information is less actionable at that point?
Alex: So one of the reasons is it’s much harder. It’s much harder to write a good comprehensive story on that. It wouldn’t necessarily be sort of feature-y type of story because you really have to dig in and sort of start at the beginning, like you guys do a good job of it on this podcast. But from a reporter standpoint, we need to decide do I want to spend the work on sort of figuring out exactly how good this acquisition was from a culture standpoint, from a financial standpoint. I have to go back, I have to figure out sort of exactly how this acquisition may have been profitable or unprofitable. A lot of the names the numbers are masked because once a big company buys a little company, they don’t necessarily need to break all of the numbers that used to publicly available when that first company was public.
David: We joke on the show that’s why we love lawsuits.
Alex: Right. Exactly.
David: Because we get to dig into them.
Alex: Exactly. The numbers all of a sudden become public or other things that were hidden for sure. But I mean the biggest reason is what you said, that it’s not actionable. The main reason is that my incentive here is particularly at Bloomberg, is to move markets. It’s something that is very well known here. The goal is to provide value to a Bloomberg subscriber that’s trading on information. So at Bloomberg, it’s very cut and dry which is like if you have the time, 80 percent of the time should be trying to break news on live deals. The other 20 percent – I mean these are just made-up numbers but I’m saying, whatever. The other 20 percent is sort of your own time. So if I wanted to write a story like that –
David: Google time.
Alex: Right. It’s Google time. Exactly, that’s right. It's free project, Google X or whatever-they-call it Google. So then it’s up to me on what to do. So, look, this isn’t quite what you guys do in the podcast, but we did decide as a team that we’re going to take on a project for next year where we do oral histories of certain deals. So that’s something you can expect for Bloomberg. So we will go back in time and talk to the people that were involved let’s say 10 years ago. I think we’re going to try to do them around like acquisitions or anniversaries of acquisitions. So we’re going to go back and talk to the people that were involved and ask them why they did this, what they were thinking at the time. It won’t really be a look at sort of how successful or unsuccessful that acquisition was. So that’s not quite what you’re getting at. Those really are sort of what I read in Harvard case studies typically, Harvard Business School case studies at business school. So for people that have actually gone to business school, I think you do see that a lot of the time. But those are not publicly available in general for people. So you really don’t see that very much. So one of the reasons, yeah, it's not actionable and the other reason is that it’s just sort of hard to do it given the fact that you have mandates to do other things.
David: It’s like getting news on Facebook versus reading articles on medium or something like that or Longreads.com or something like that. You know, you want the dopamine, like the dopamine hits them which for you guys is moving markets and for the news industry like there’s a lot more… in aggregate there is a lot more dollars and value and buzz in that than there is on the heart of going back and eating like a whole plateful of vegetables.
Alex: I do think that another part of it is that the general public really just wants to know the headline information. So what company is buying what company and how much is it? Then like they sort of move on. I mean, all the news cycle works like that. In all forms and fashions of life, what’s the headline news? Okay, I got it. We’ll just move on. That’s sort of what our culture is like now.
So even in what you’re talking about which is like was an acquisition successful or not, almost all I want to know, it can be sort of told on a gut level. So like have I read how successful Facebook buying Instagram was? No. Do I know that Facebook buying Instagram was really successful? Yeah, I do. I’d like to know maybe how successful it was but once I know how much money Facebook gained from Instagram, which requires some analysis, like that’s all about I needed to know. I don’t really need to read the sort of the why behind that. People that are really involved in this stuff and do it for a living I’m sure would. But then all of a sudden now you’re dealing with sort of a new form of media which is like all right, well if I’m only writing something to the people that are really involved in this, now I’m almost working for a trade publication rather than the Wall Street Journal or Bloomberg. So I’m going to write something that’s really focused on from an audience perspective about who I’m writing for.
Ben: Yeah. That’s something we think about at this show all the time. David and I have looked at our numbers. We probably had three sort of check-ins since we started the show and tried to figure out, “Okay, what’s the future of this thing?” This is like a side project for both of us and you start looking around at other technology podcasts like whoa, how big could it get? But you’re right, it's super niche. It’s this thing that its people that are in the M&A world or in startups and hope to one day be in the M&A world. And that’s got a ceiling and I think you talking about the fact that it kind of fits under that moniker of trade publication is the best way to succinctly put it that I’ve heard yet.
Alex: It’s something that I think about too for my podcast which is, I mean it’s an M&A podcast so I think to myself like all right, well, people that have some sort of demonstrated interest in M&A which pretty much means you work in the business, well, listen to this. And how do I get out of that box? How do I grow an audience for my podcast too?
So just this past week’s episode is Rob Kindler who’s the head of M&A at Morgan Stanley, global head of M&A. His brother is the standup comedian, Andy Kindler. So I had them both on the show. So I’m trying to figure out ways myself of like all right, well, maybe Andy Kindler fans will listen to this thing and it’s not just the M&A crowd. I’ve got to think to myself how do I grow the audience here so that it’s not just sort of the standard fare of people that work and sort of live and breathe this industry.
Ben: Well, I can tell you that I think your idea to do, what you and the team have decided to do with kind of more on the feature piece around anniversaries, just looking at what people have told us about this show has a lot of merit because when we do certain episodes, for example the “Snapchat and Facebook acquisition that wasn’t” episode, that has a tremendous back story and there’s drama. Listening to David run through the acquisition history and facts there is enjoyable in its own right just as a form of entertainment. So I think that there have been a few instances where we had a more dramatic history reading there and that is something that we continually have people tell us, “You know what, I actually am not that interested in M&A but I listened to that episode specifically because my friend told me it was interesting and I loved hearing that story.”
David: Yeah. That is absolutely something we found and have been spot on on this show. Our listeners can tell us if you disagree but I doubt you will. People listen to us for the stories. That’s what’s so interesting that we found is this difference between news versus stories versus analysis and getting that balance right. Obviously our listener base and potential listener base is much smaller than Bloomberg’s. But I find it fascinating how those three pillars of what’s going on vary by medium.
Alex: Yeah. I don’t know if I should give this away because my competitor at the Wall Street Journal are listening and they’ll take the idea, but I’ll at least tease you guys. That’s it sort of what you’re hinting at where there is sort of an anniversary coming up of a counterfactual, a deal that did not happen. So that’s sort of what the oral history that I’m thinking of doing is to talk to the people that were involved and sort of why it didn’t happen and like what the world would have looked like if it did.
David: So cool. Well, I mean thinking our latest episode on Android is probably on-track to eclipse this. But I think our most popular episode is Snapchat.
Ben: Neck to neck with LinkedIn because we did that one like, that was the first time that, you know, not that we’re close to breaking news there but it was still at the top of the news cycle when we released that episode. So I think it was a lot of people asking their friends “What do you think of this LinkedIn thing?” And we had already put up an episode so people would say, “You really should listen to this podcast episode and hear about it.”
David: Yeah. But that was like a spike when it was relevant in the news. But Snapchat just keeps getting tons of downloads and I think it's because of this like, oh, it’s this anti-history like what the world could have been if Snapchat were part of Facebook.
Alex: Yeah. I also think a lot of people are simply just fascinated with Snapchat. I know I am. In part because, I mean I’m 34 years old and I can’t figure out how to use Snapchat. It’s the first company that has a product where I’m like I am aged out of this at this point, like I don’t know what this thing is.
David: It's depressing.
Alex: Really not intuitive to me. I don’t fully understand why it's popular. That said, I do see sort of a Snapchat model here that where I feel like other companies are we’re all sort of moving towards something. We just met with the whole executive team at Line, the Japanese company that does its messenger service. And they were sort of explaining to us how in Japan, Line and some other companies have sort of taken the path of having your whole ecosystem done through its platform. So, on Line you can order a cab through Line.
Ben: Basically an operating system.
Alex: Yeah. You order your meals through Line. So all of these other independent apps in this country are sort of housed within one ecosystem with Line and you can see Snapchat developing into that. Certainly Facebook is trying, but you know, Facebook Messenger is still sort of very much independent of Facebook and sort of that your core Facebook, your newsfeed, your pictures, it's not quite all lined up in the same sort of bubble ecosystem. Obviously, I think even the new iOS 10 for Apple, you’re sort of seeing things move in this direction a little bit.
David: There’s an App Store baked into iMessaging.
Alex: Exactly. So I think Snapchat has it right where they’ve realized, oh, this sort of housing form of chat and general communication can also be used to do other things.
David: One of the questions we're going to ask you is a section we always do on the show is tech trends and what this deal represents in tech trends. I think that’s a perfect one of, you know, that we were going to ask you like what tech trends do you see covering the landscape that are coming and absolutely how messaging, like you can look to Asia and see how messaging has evolved into this operating system there. Then the question I think like is and if so, when will that start to be the reality in the US as well? Major wave that’s happening in Asia and the question is: is that coming here to the US too?
Alex: I’m curious to hear your thoughts on this one because here’s a tech trend that has not happened yet but – So before I was an M&A reporter at Bloomberg, I covered media for three years and then I transitioned into this role of covering all technology, media and telecomm.
David: Covering media at a media organization is like the ultimate neighborhood –
Alex: For sure. Absolutely. Totally right. Look, you’re around a lot of people that sort of came from organizations that you’re covering from too so it’s sort of like, “Oh, like I need a Time Inc. source.” Well, I just walk three rows down and that guy used to be the managing editor at Time. That type of thing.
So here’s my question to you. We have seen the way a lot of consumerish media tech companies are valued for years now has been based on users, whether it's MAUs or some other form of just user growth. That has been the main way that a lot of these media-ish companies have been valued. But at some point and we're already seeing it with some, like let’s say Twitter, the growth stalls. But there’s still value to these products. But the way Wall Street has valued them, basically there just seems to be a cap and then they may turn into some sort of zombie-like companies because the user growth isn’t there and they’re not making any money. So, what’s the way out? Well, right now the answer seems to be like they just sort of give up or sell. But I wonder, if one day, we see some of these tech media companies that have always been based on users, if they can somehow formulate a new way of generating revenue through some degree of subscription which we have not seen. So, you know, Twitter has never thrown out a subscription fee. Certainly, Facebook hasn’t and they've never wanted to because the way Wall Street has valued them, that would actually be sort of anathema to what they’re going for.
But, you know, at one point, but we have seen among more traditional media companies that have gone online, they have transitioned to something that you would call a subscription model which is the paywall. So you now have to subscribe to the New York Times or subscribe to the Wall Street Journal. So, is it just a matter of time before this sort of traditional media that has gone online meets the new media that has not done this and do we see some of these older new media companies go with subscription?
Ben: Well, Alex, I think you’re forgetting about the vibrant community over at App.net, the subscription-only Twitter.
David: That is a blast from the past, Ben.
Ben: So, you know, I look at this as I think the reason why there is a little bit of success with paywalls at publications and why I think that would be the nail in the coffin for any form of kind of like new media that involves, let’s call it social media, is that traditional media doesn’t require network effects. Let’s say Twitter for example absolutely does and as soon as people, you know, my sources are no longer on Twitter like the people that I want to be following because they decided not to subscribe, it's less valuable for me and then I don’t get that content so I’m incentivized not to subscribe and I think that there’s this like unidirectional value creation that happens from traditional media companies to their readers and there’s this massively bidirectional interconnected web on social media where if people start falling out of the ecosystem, then everybody else is less incentivized to pay also.
Alex: Isn’t it possible though that some of these systems become so sticky and invaluable to our life that if you present people with the option of having to pay some sort of really small micropayment which you can then slowly move up over time, that people wouldn’t just drop out? If you had to pay a penny to stay on Facebook, would you do that?
David: In aggregate, that’s a lot of pennies.
Alex: My whole life’s on Facebook. All my pictures are on Facebook.
David: What’s interesting, WhatsApp took this approach that it’s a dollar a year.
Ben: That’s true. And free for the first year crucially.
David: Yeah. Free for the first year and then a dollar a year. I think it’s super interesting, what you’re saying. Well, you know, the cynic in me says, “Alex, come on. That would require actual creativity and Silicon Valley is creative on the surface but, you know.”
Ben: I think more like the cynic in me says people don’t pay for things and people especially don’t pay for well, I guess people don’t pay for entertainment, people don’t pay for websites.
David: Well, here’s the way I think you could do it, though.
Alex: But of course they do pay for entertainment. They pay for TV, for instance. Now I mean that’s eroding a little bit but that’s still like a hundred million people that pay for TV in this country.
Ben: Ooh, would they do a rev share? Like could you see Twitter influencers getting paid out a percentage of their followers?
David: Of producing the content? Yeah, Ben, though, I mean the crux to the point Ben is bringing up is unlike a Wall Street Journal or a Bloomberg or New York Times, Twitter or Facebook don’t pay their reporters to generate content. It’s dependent on people being on the system.
Ben: Or even like YouTube. That’s actually the interesting middle ground.
David: YouTube does pay people.
Ben: YouTube, right. They pay their high end content creators and they have a subscription service.
David: That’s right. But where I think this could work, I actually think Bloomberg could be a really interesting model here that people haven’t really tried in this area in tech. You guys, just like we're talking about in the beginning of the show, you monetize the information and the meaning of what you do and sell that as a very, very expensive subscription to people who care a lot about that. And yet, for Ben and me, we go to Bloomberg.com and get and read your reporting for free. It would be super interesting, you know, Twitter especially I think could do that if they made the right investments, like what is the data that in aggregate is generated from Twitter from the “fire hose” that is very valuable to people.
It’s interesting like there is clearly demand for this. There are third party companies that do this. There’s Data Sift. There was the company, a top CE that Apple bought and there are a few others. But obviously as a third party, you’re not going to be able to do that any way near as well as Twitter itself could. There could be a huge latent revenue stream.
Alex: Yeah, it’s tough. Obviously what the big fear there is you don’t want to disincentivize your power users from using Twitter. So, it needs to be something where it’s very purely additive for them to actually pay for whatever it is that they’re getting rather than sort of have them feel like they’re targeted to pay more money.
Ben: Right. Does Bloomberg use paywalls at all?
Alex: We don’t. We don’t because we have the terminal. So, we’ve decided that we’re not– Now again, that is a discussion that I know has happened here before, the sort of the idea of should we use a paywall. So the decision so far has been no, because we sort of have this built-in paywall in our system. But one day, I suppose that could change.
David: Super. You’re bringing me back here to my days at the journal and in media and they’re very happy memories in one regard but on the other hand, business models of media are tough.
Alex: Look, we’re talking about Twitter or sort of social media in general and one point that I do want to make here which, again, sort of it speaks to an issue that we have sidestepped, but the issue still remains which is as a reporter now, I no longer… really, if I have a reputation of being right, I actually don’t really need Bloomberg’s infrastructure anymore to move markets.
So, I’ll give you a real world example which is when Comcast acquired Time Warner Cable, I got that information like 9:30 at night. I had it sourced. We were good, I knew I was 100 percent right. But it was 9:30 at night and the Bloomberg infrastructure sort of among like my editors, like no one was at work. They’re all at home. So I had to sort of figure out and I was also sort of new to this role, so I had to figure out like how do I alert the right people here to get them all online so that they can approve my sources so that we can actually write this thing. Not only do the sources have to be approved, but then I have to write four paragraphs and editor needs to read those four paragraphs, and then editor needs to queue up headlines, we need to make the decision to redhead as I talked about before which of course, that requires sort of a new level of authority.
So in the amount of time that it took for me to figure out all of the different levers that needed to be pulled, the right people to contact, the phone calls to be made that first weren’t answered and then were, in that amount of time, David Faber who at CNBC got the news and just sent out a tweet, and he broke the story on Twitter which CNBC sort of allowed him to do while I had the story at least 42 minutes before he did, because he just broke it instantly.
Alex: So it made me think like Twitter has sort of upended this. Like, I don’t need Bloomberg anymore. I could have broke this thing on my own.
David: That’s like as a venture capitalist when you pass on Facebook.
Alex: Right. But of course I do need Bloomberg because they’re paying my salary. So I would have to be a real entrepreneur and be confident enough that I could sort of start my own thing on my own and just sort of use my own channels.
David: You have the example of Kara Swisher and Walt at Recode who have done this. But still, even so they got acquired by Voxx.
Alex: Exactly. And they make their money in part through their conference business. The better example might be The Information which is Jessica Lessin’s which charges. I mean, so they are a subscription media model like we were talking about. They charge several hundred dollars per year for their information. I don’t know exactly how successful they've been at getting people to pay for their information but it’s not sort of the slam dunk. Obviously, Bloomberg has enough else going for it that, like if you’re listening to this, boss, I’m not leaving.
David: What you can’t have as an independent though and this is like the ultimate tech trend for me is they don’t have the redhead. They don’t have the customer relationship and proprietary data channel to your customer, you know, the financial traders or whoever the equivalent is in whatever industry. If you control that, you can…
Ben: Well, but all you need is that to initially build the trust. And now that Alex has that, if Alex were to tweet, I would suspect that he would be able to move markets on his own.
David: It would and he needs to build the redhead.
Alex: In fact, there was one time several years ago, I think it was Shutterfly being for sale, though that might not be right. But there was one instance several years ago where I thought that we had– This actually changed Bloomberg’s tweeting policies, this one mistake I made where I thought the story had gone out and tweeted something and actually front run my own story. And so I was a real-life test case where I did move markets. My tweet was picked up by traders and the stock moved 5% because I said Shutterfly had hired Catalyst to sell themselves or whoever it was.
Alex: Then we realized the story hadn’t gone out, we immediately pushed out the story at that point. But there was, like, 9 seconds of confusion there where I had basically beat my own story and then we sort of huddled up as an organization and we were like, “Okay, from now on Bloomberg reporters can’t tweet out stories until the story has a link involved to it so that we’re sure the story has gone out to the world.”
Now again, we’ve even amended that policy by now we have a link that only terminal subscribers can see so that we can tweet out with this link. So the normal web link doesn’t go out still until 15 minutes after the fact, but we keep sort of coming up with like little incremental amendments to this in order to sort of try to keep up with like the general world of social media with this built-in 15 minute difference. I imagine that if I speak to you next year or two years from now, the rules will have changed again.
Ben: God, this is fascinating.
David: Super cool. I want to be totally respectful of your time, one quick topic we wanted to cover before we move into Follow Ups and Carve Outs is so many of our listeners work at startups, are entrepreneurs, are aspiring entrepreneurs. Maybe this is earlier in the life cycle than where you play of companies. But the press for startups is such a black box. Like if I’m a startup CEO or founder and I just have no idea how you work, I have no idea how to get in touch with you, should I invest in building relationships. Any thoughts from your end being on that side of the table of how entrepreneurs can best interact with you?
Alex: Well, you absolutely should try to build a relationship. But the way you should try to build a relationship is to know what our job is. That very much depends on who you build the relationship with. So certain outlets are going to cover startups much more closely than others. So you know, Bloomberg plays in sort of the big game land where like we’re going to write a lot of stories about Uber, but we’re not going to write any stories about your piddling million dollar valuation startup at this point.
David: You’re not covering Series A funding announcements?
Alex: No. But Tech Crunch is or like whoever it might be that’s sort of covering that at that level. So yes, build a relationship with a Bloomberg reporter, but don’t expect us to sort of cover you favor and write about your startup that nobody knows because we just don’t do that here. Like it’s just we don’t have the audience for it. So nowhere we’re coming from, it’s not personal. It’s just that like our editors are not going to allow us to write that story. However, the day that you guys all of a sudden you've put out a Series B, Series C, Series D and now you’re in almost unicorn territory or unicorn territory then yeah, like it’s good that you put in the time to make a relationship with a reporter because now that your company is big enough to write about, now you’re probably going to get a more favorable story because you've spent the time having some lunches and coffee and you've built a relationship with a reporter and the reporter knows that he can go to you for access. You have to remember where the reporter is coming from, too. Well, what we want is exclusive information. That’s what we want.
This happens all the time with smaller M&A deals with me that are sort of pitched at me. Like if a deal sort of with two companies that no one’s really ever heard of and it's right on that billion dollar line, like we might cover it or we might not, if you give us the information exclusively, if this is a Bloomberg scoop, we’ll cover it. If you wait and put out some sort of press release or you can give it to somebody else first, like we’re not going to cover it. It doesn’t give us any value. So you need to figure out, and this is maybe the best piece of advice I can give to an entrepreneur that wants to build a relationship with the press, ask the reporter what matters to them, and then figure out a way that you can give the reporter what matters to them. So for Bloomberg, it’s exclusive information.
For somebody else, maybe it’s, you know, I don’t know, a sit-down interview with the CEO or whatever it may be. But figure out what it is that the reporter wants and whatever that is will be dictated by what the organization finds meaningful, and then down the road if you’re able to sort of cash in on that, then I think you’ll get sort of the positive result you’re looking for from the press.
David: It's probably always exclusive information but it's what type of exclusive information. For you, it’s a deal for another type of organization that’s a sit-down interview.
Alex: That’s so right, David, and that’s I think the important part to make which is in many ways, you can sort of give out 8 different scoops on the same story. Just sort of piecemeal your information and give one person one piece of exclusive information and give another press outlet another piece of exclusive information and then recode the Wall Street Journal, the New York Times, the Financial Times, and Bloomberg can all sort of say that they had scoops and because you've sort of divvied out the information, you've now gotten seven different stories instead of one with six others ignoring you.
Ben: Love it.
David: In VC we call that a party round.
Alex: Right, exactly.
David: This has been awesome. I’ve had so much fun with this, like I said, reliving my old glory days in the media and tech press.
Alex: How long were you at the journal, David?
David: I was there for just a year. So, a very short stint. So I can’t speak as any sort of expert but it was a lot of fun. I think I was the youngest person there by about 30 years.
Alex: Right, naturally. So now you’d only be the youngest person by, what, 25 years or whatever it may be.
David: Twenty years, yeah. A couple of quick followups and this will be fun having Alex on the show here. So, we have three quick sections to wrap up the show. One is followups on things that have happened with deals we’ve covered in past episodes. Two is hot takes which are any M&A deals that have happened in the last couple of weeks, we do a 30 seconds or less quick analysis of. And then three is carve outs which are fun unrelated items we talk about. But Alex is probably up on a lot of this stuff. So, feel free to chime in if you like or Ben and I will lead, but any thoughts, please chime in.
First followup we have is Instagram. Alex, you were joking about “Yeah, Instagram is probably good. I have no idea how good it is.”
Ben: The A+ of Instagram keeps on rolling.
David: It is, all right. On this show Instagram is our benchmark for the best deal, the highest rated deal that we have ever had on this show. So they announced this week that they now have– We’ve talked in the past with followups about user numbers. Also going back to our conversation, Alex, that we just had on social media and aggregating users and the value of users, they announced this week that they have more than 500,000 active advertisers. So, separate advertisers, organizations buying ads on Instagram over 500,000. That’s up from 200,000 in February.
Ben: It’s interesting because advertisers are aware where the revenue comes from, so it's interesting to look at that. But just by looking at the growth of that, I mean it’s been, what, 8 months since February and seeing Instagram’s ad program is what, like 2 or 3 years old now, so seeing like in 8 months to grow that much, probably most thankfully due to the fact that the advertiser portals are integrated. If you’re going in with an advertiser that already is using Facebook, you check a box, upload some different assets and boom, you have an Instagram ad. Talk about synergies. They've really leveraged their relationship and the tools that they have for Facebook advertisers to have a whole new incredible growth channel there with Instagram.
Ben: Next one?
David: Next one we have real quick is Amazon. Obviously Amazon wasn’t acquired but has been an acquirer on several companies we’ve talked about and referenced a lot. Just today, share price hit $800 a share. Ben, you’re trying to time the market on buying Amazon. You can just give up.
Ben: I can tell you property value –
David: Not that we give investment advice on this show.
Ben: Yeah. Property values in Seattle are now at an all-time high. The Amazonification of Seattle is something really incredible to watch and the economic growth in the region from this company starting right in the center of the city and kind of exploding outwards and there’s now 3 or 4 separate neighborhoods overtaking downtown. We’ve talked a lot about their strategy before. I think I couldn’t be more bullish. I still am stupidly trying to time the market and wait for investors to cool a little bit so I can get in, but I continue to say I should just buy in now.
David: For the investors on the show, not advice, but if you’re looking for a derivative way to play the Amazon story, you should invest in Seattle real estate.
Ben: That’s true.
David: Hot take. We only have one this week, real quick. A small deal but interesting one relevant to our episode on Waze and discussion of the future of automotive and transportation and technology is Ford buying Chariot.
Ben: This one’s interesting to me. So Chariot is basically the public bus system but better and with fewer stops and subscription based. I believe it’s only in San Francisco.
David: I believe it was only in San Francisco.
Ben: Yeah. You pay I think it’s like 100 bucks or something and you get access to these great buses that pick you up at –
David: Shuttles, yeah.
Ben: Yeah. So, as far as Ford breaking into this trend of service-based or subscription-based car ownership or self-driving cars, transportation is changing in a lot of ways. This doesn’t seem that interesting to me. It seems like there was a lot more things they could have bought that would have signaled to me, “Oh, they’re doing something really transformative,” and here, I’m not totally sure what the play is.
David: Yeah, I’m not either. It was a small deal but definitely, you know, we saw GM buy Cruise earlier this year.
Ben: Which Cruise, that’s game changing, right? Like you drop this thing on the top of your car and it can become self-driving.
Ben: Are you kidding me?
David: Bloomberg probably covered that deal. Probably not Chariot.
Alex: Yeah. We’re obsessed with this sort of self-driving car. That’s why we decided to redhead that Apple-McLaren story even when McLaren later came out and denied it, which by the way, as sort of a side topic, they didn’t have to deny that so I don’t know why they publicly denied it because based on our sourcing, they at least had conversations with Apple. They phrased that “we’re not in talks right now.” So I’m not really sure why they denied it rather than just stayed silent. But whatever, I’m sure they had their own reasoning for doing that.
Ben: It’s interesting. Did it positively affect them because then the rumors seriously negatively affected Apple stock?
Alex: You never know in these cases. Like because it seriously negatively affected Apple stock, that may have been why they came out and denied it. Apple may have gone to them and said “please do this.” Apple, I can tell you from a reporter standpoint, is like sort of one of the few companies that acts as like the mafia. I mean, the amount of fear that they put in to other– I heavily covered when Apple was seriously considering coming out with their own TV product because in I want to say 2013-2014. I was covering media then. So they were in discussions with Comcast and Time Warner Cable and other companies to potentially figure out if they wanted to sort of own the programming themselves or just sort of be like a partner with the cable companies and use their programming. And it was so difficult to get information from the media companies because they basically said like Apple told us not to say anything. I had never heard of that from any other company that the company had done business with.
David: Like Apple’s not your boss.
Alex: Exactly. They were free to talk about every other company they did business with, but Apple. But it was like no, no, no. I think Steve Jobs was still alive then too so maybe it was a Steve Jobs thing.
Ben: Katie Cotton was their head of PR and apparently it was much, much tighter back in that era than now it is.
Alex: I’ll throw in one more hot take for you guys, which is just I’m curious to see what happens with the Yahoo sale to Verizon now that Yahoo has said that 500 million of their users were breached in this big data breach from whatever sort of state sponsored hacker hacked into their system back in 2014. I don’t know if this will have any sort of repercussion on the Verizon deal but already you’re starting to hear sort of outsider speculation that if this does turn out to be a big deal, maybe Verizon would push to try to alter the price of the deal. So I don’t know, a lot of that stuff will certainly come out in the next days, weeks, months.
Ben: Interesting. Do you know if that’s precedent to alter the price based on something like this or any event in general?
David: It definitely has a potential to be materially adverse which I presume all of the contracts, in another former life I was an investment banker and yeah, all the merger agreements and stuff until closed will have contingencies and max material adverse clauses.
Alex: That’s right.
David: This would definitely fall into that.
Ben: I don’t know enough to speculate but if the breach is as bad as it sounds like it could be, I mean you’re talking– It wasn’t that long ago that the Sony hack happened and the amount of value destroyed at that company and costs they had to incur is definitely material.
Alex: Right. So who knows? This apparently happened in 2014 and like I don’t know what has been done with it since. So maybe that would suggest that it’s not that material but I don’t know, obviously Verizon is going to want to look into the details of this. So that might be something to keep an eye out on.
David: We will be on the case when it does. All right, Carve Outs. Ben, what you got?
Ben: The Carve Outs, for new listeners, is a thing that we do that is a book or a piece of media that we’ve consumed that may or may not be related to the topic of this podcast. A lot of times I’ll give an article or something that gave me pause and was something that I liked reflecting on or it might be more philosophical or any of those things. This time going kind of totally out there, there’s a little recap video from Burning Man on Vimeo by user Phil of Drones and it is one of the most just beautiful, visual captures of any real-life event I’ve ever seen. It’s a ton of drone footage. It’s a lot of maybe steady cam footage but it’s just this really tremendously beautiful recap of Burning Man this year.
Burning Man, I think it gets bigger and bigger every year and more and more technology arrives there every year. So, you know, 10 years ago it was something that you’d hear about. You wouldn’t really get what it was and you couldn’t really get much about it. And now, people are still grappling with like what the heck is this thing if you’ve never been. Which, for the record, I’ve never been. But now, the amount of media coming out of this where we're seeing people, it’s just like incredible creations. It’s super cool. So, we’re going to drop the link in the show notes. It’s Burning Man 2016 by Phil of Drones on Vimeo. Go check it out. It’s a super cool way to spend 5 minutes.
David: Super cool. Mine is a quick one this week. A new book that came out recently that I read called Algorithms to Live By, by Brian Christian and Tom Griffiths. This is a super fun book, quick read. It’s about fundamental computer science algorithms like searching and sorting and scheduling and optimal stopping that you learn about in your intro to CS classes in college or in high school. But then about like what those algorithms are for people who aren’t CS folks, but how to apply them to your life and it’s super cool. It’s like how do you sort your closet based on optimal sorting algorithms to how should you handle your email based on scheduling algorithms to all sorts of stuff, how should you decide when you found the right person to marry based on optimal stopping problems. It’s very techy but written from a humanities perspective, so I enjoyed it quite a bit.
Alex: I think I’ve got one. I wish I have the time to read books now. I have two kids under 3, so those days are– I mean, I assume they’ll come back.
David: You need optimization algorithms.
Alex: Right. Exactly.
Ben: Raising children and lending your time.
Alex: But I’ll give you one because I thought it was very interesting, which is Ross Douthat wrote a column for the New York Times talking about– The headline was Clinton’s Samantha Bee Problem. It talks about how late night talk show hosts have sort of vehemently swung to the left in this particular election. Whereas even four years ago, in sort of the Letterman and Leno late night world, these guys were… Letterman I guess sort of tilted left. Leno was sort of very middle of the road. But other than maybe Jon Stewart occasionally and even Jon Stewart would sort of pad his criticism of the right by saying “Hey, look, I’m a comedian first and this is a fake news show.” You’re no longer seeing that. You’re seeing Jon Oliver, Samantha Bee, Seth Myers, and Trevor Noah and a lot of these sort of late night characters really swing hard to the left and basically call out Donald Trump and Donald Trump supporters of as being bigoted and racist. There’s no sort of middle ground here and yet, he says, he juxtaposed this to the general public where there’s still a huge percentage of this country that votes Republican and yet there’s a big mismatch now between what you see sort of on late night TV and sort of your maybe random averagely average piqued American that maybe is an independent or centrist or Republican, and there’s no real outlet on the late night spectrum. What he makes of this is sort of like basically he likens it to what we saw on the ‘60s and ‘70s where the culture really dramatically shifted leftward and yet we had Nixon and then in 1980 we had Regan.
So there was this sort of mismatch between the culture the politics. So he’s sort of hinting at are we going to see this again if Trump is elected where just the sort of your general entertainment culture is really out of whack with your general politics in this country. So, interesting read, I thought. It got a lot of criticism on Twitter but I didn’t think it was particularly deserved.
Ben: Well, I’ll definitely have to read it.
David: Yeah, me too. No matter what you think about this election, it has been a bonanza for the media industry covering it.
Ben: Well, Alex, where can our listeners find you? Your podcast, your Twitter. Where do you want to send them?
Alex: So the podcast is called Deal of the Week. It’s available on iTunes or you can find it on Bloomberg.com and you can find me on Twitter @sherman4949. I typically will tweet out the podcast. It’s once a week. Their episodes are about 25-30 minutes. So, feel free to subscribe on iTunes.
Ben: Awesome. For our listeners if you’re listening to this episode and you have not yet subscribed but would like to hear more, subscribe from your podcast client, from iTunes or Overcast or any other client, and if you feel so inclined, we’d love a review on iTunes or tweeting about it. So, thanks so much. We’re @acquiredfm on Twitter and we’ll see you next time.
David: And most importantly, thank you to Alex. This has been a huge treat for us and a lot of fun. We’d love to do it again sometime, cover more aspects. But thanks so much for taking your time to be on our show.
Alex: My pleasure. Loved doing it.
We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.
Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!
Purchase Price: $4.2 billion, 2009
Estimated Current Contribution to Market Cap: $20.5 billion
Absolute Dollar Return: $16.3 billion
Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…
Total Purchase Price: $70 million (estimated), 2004
Estimated Current Contribution to Market Cap: $16.9 billion
Absolute Dollar Return: $16.8 billion
Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!
Total Purchase Price: $188 million (by ABC), 1984
Estimated Current Contribution to Market Cap: $31.2 billion
Absolute Dollar Return: $31.0 billion
ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”
Total Purchase Price: $1.5 billion, 2002
Value Realized at Spinoff: $47.1 billion
Absolute Dollar Return: $45.6 billion
Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.
Total Purchase Price: $135 million, 2005
Estimated Current Contribution to Market Cap: $49.9 billion
Absolute Dollar Return: $49.8 billion
Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.
Total Purchase Price: $429 million, 1997
Estimated Current Contribution to Market Cap: $63.0 billion
Absolute Dollar Return: $62.6 billion
How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.
Total Purchase Price: $50 million, 2005
Estimated Current Contribution to Market Cap: $72 billion
Absolute Dollar Return: $72 billion
Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.
Total Purchase Price: $1.65 billion, 2006
Estimated Current Contribution to Market Cap: $86.2 billion
Absolute Dollar Return: $84.5 billion
We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”. With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.
That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.
Total Purchase Price: $3.1 billion, 2007
Estimated Current Contribution to Market Cap: $126.4 billion
Absolute Dollar Return: $123.3 billion
A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...
Purchase Price: $1 billion, 2012
Estimated Current Contribution to Market Cap: $153 billion
Absolute Dollar Return: $152 billion
When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.
Methodology and Notes:
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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
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