Navigation and traffic report app Waze Ltd. has almost reached its destination. Yesterday "Globes" revealed that Google Inc. (Nasdaq: GOOG) is about to acquire the Israeli company for $1.3 billion. Today "Bloomberg" reported that Google will officially announce the acquisition this week, and perhaps even today. "Bloomberg" puts the price tag at $1.1 billion. Both companies are maintaining complete silence on the matter.
Waze has 100 employees at its Ra'anana officers and a smaller number of employees in its Palo Alto office. In recent months it has been reported that Facebook Inc. (Nasdaq: FB) was going to buy Waze but the deal never happened because Waze's senior management insisted on maintaining their Israeli operations. As far as is known, Google plans keeping Waze and its employees in Israel. Another difference between the deal is the method of payment. The belief is that Facebook offered to buy Waze in cash and shares while the Google deal will be entirely for cash.
The official announcement that Google is buying Waze has yet to be released but the question that is difficult to answer is why does Google need Waze? Google already has an excellent navigation program installed in its Android, which includes reliable information about traffic congestion. Google is helped by its Android users and updates them with data about average traveling times on the roads. Google has yet to successfully set up a social network (Google plus is struggling to catch on), while Waze is considered an active social network for drivers with close to 50 million users.
So what can justify the deal? Google can try and integrate the social network capabilities of Waze with Google's navigation apps. Waze has options to report accidents, police presence, speed cameras and blocked roads, all things that Google does not have. Google may be interested in keeping Waze as an independent product and not intervening. In such an instance, it could simply be that Google wants to prevent Facebook buying Waze.
Another possibility is that Google wants to use Waze in the future as an alternative to Google Maps. Microsoft implemented a similar step when acquiring Skype for $8.5 billion two years ago. Microsoft, which had a rival product called Messenger closed it not long afterwards and currently offers Skype as its solutions for both Internet conversations and immediate messages.
And on the subject of Microsoft, it is worth remembering that the software giant owns 10% of Waze and will receive a $100 million check from Google.
The really big winners at Waze are those venture capital funds that invested in the company in the past three years. If we assume a price tag of $1.1 billion then those funds recouped 12-13 times their investment. A fact that will benefit venture capital funds when the worthwhileness of such investments is being questioned.
Details of Waze's shareholders can be found at Israel's companies registrar. Finding out such information can general be problematic because most shareholders are investors who were given preference shares of various types and enjoy preferential conditions if the company becomes liquid or raises more capital. This means a difference between the value of regular shares and preference shares. However, in a deal where there are significantly high returns, the conditions by which preference shares are prioritized becomes irrelevant so that there is almost no practical difference between the different types of shares when dividing up the income from the sale.
The big earners from the Waze deal are Magma Venture Partners, which holds a 17% stake and BlueRun Ventures which holds 19% of shares. The navigation app's final round of financing at the end of 2011 created a significant change in the stakes held by investors. That round, which was held at a company value of $250 million included all types of mini-exits such as Vertex Venture Capital, which sold a 5-10% stake to Hong Kong billionaire Li Ka Shing's Horizon Ventures and Kleiner Perkins for $15 million, and held on to a 12% stake. Vertex must surely be frustrated that an exit 18 months ago has lost them a profit of many tens of millions of dollars today.
In that final financing round Horizon and Kleiner Perkins invested $30 million to hold 11% and 4% respectively. Waze also has two strategic investors, Microsoft and Qualcomm who joined during the second financing round at the end of 2010 when the company had a value of $95 million, according to IVC. Those two companies own 10% and 5% respectively.
The anticipated deal which will take place a relatively short time after the company's establishment means there is a relatively significant stake of nearly 20% held by the founders and employees. These include Ehud Shabtai (6%), Uri Levine (3%), Amir Shinar (2.5%) and Arie Gillon (0.3%). There is a possibility that the founders have already realized part of their holdings in this or that deal with shareholders, or will enjoy substantial options as part of their executive remuneration in maturing the company towards a sale.
Published by Globes [online], Israel business news - www.globes-online.com - on June 10, 2013
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