Market Exit Strategy: Accounting for Antitrust in Google Exit Options

Last week, on June 23rd, the Wall Street Journal reported that the Federal Trade Commission (FTC) was preparing to launch an antitrust investigation into whether or not Google has abused its search advertising market power by unfairly prioritizing its own network of services in its rankings at the expense of rivals.  This announcement was not the first time that Google has gone under the US antitrust microscopes.  In fact, in 2008, the Department of Justice (DOJ) challenged and broke the back of a Google advertising agreement with Yahoo and, in 2010, the FTC challenged Google’s acquisition of AdMob.  However, prior US antitrust investigations have mainly concentrated around Google’s merger and acquisition activity and this is the first US investigation targeting its core business practices.  The European Commission launched a similar investigation into Google’s anticompetitive business practices last November.

So what does this recent announcement mean for future Google merger and acquisition activity? And how will this impact startup and expansion stage company market exit opportunities in the near- and mid-term future?  In the near future, this investigation will likely trigger a Google budget reallocation, which will shift a significant amount of its growth capital into its legal budget to help cover the hundreds of millions of dollars if not billions of dollars in anticipated antitrust fees and fines. This shift in funds will force Google to slow down its merger and acquisition pace and will likely cause Google to be more hesitant about entering into acquisition or merger agreements that contain significant antitrust risk. However, I would expect Google to continue to acquire targeted strategic companies during the near-term and mid-terms, as it does not want to lose its market position or cause its growth trajectory to stagnate like Microsoft’s did after its antitrust lawsuit in the 90s.  The type of companies that Google targets will probably focus around its current operating areas or periphery strategic spaces like social media, as these businesses will help prop up its core business in the midst of the antitrust investigation.

This anticipated change in Google’s acquisition behavior will also impact the types of market exit opportunities that Google will make possible for startups in the mid-term and long-term.  Google will probably shy away from big deals or acquisition opportunities in the search advertisement space and other markets where it currently maintains a majority market share like video as these markets pose antitrust risks and could carry very expensive legal costs. Plus every Google move will be under the FTC microscope as the investigation gets underway and this will lead to higher legal transaction fees to get deals done.  This means that companies may want to start rethinking their market exit strategies, as Google exit scenarios will need to be discounted to account for the expected change in Google’s acquisition behavior amidst the recent antitrust filing.  The discount level should be reflective of the proximity of the startup’s business in relation to one of Google’s core businesses and the antitrust risk associated with an acquisition opportunity.  By applying a discount factor to the Google exit options in your current market exit strategy, your team should be able to easily adopt its market exit strategy to the current economic climate.

If you are interested in learning more about market exit strategies, you should read my blog post on accounting for antitrust risk in your market exit strategy and my blog post series on understanding your exit options. Similarly, if you are interested in learning more about early-stage market exit strategy, I highly recommend reading Early Exits: Exit Strategies for Entrepreneurs and Angel Investors by Basil Peters.