The Story Behind Google’s $6 Billion Offer For Groupon
If Groupon accepted Google’s $6 billion offer, it would have been the largest acquisition in Internet history. The acquisition offer was made in the fall of 2010. Groupon was the fastest website to hit $1 billion in sales and was the second quickest growing website behind YouTube to hit a $1 billion valuation. The company is led by 32-year-old Andrew Mason, an inexperienced CEO with a sharp mind, which means that he could have been a billionaire by age 30. Groupon was experiencing rapid growth and Google had a really fat wallet at the time so a sale was attractive to Groupon’s leadership team and venture capital investors.
On November 22, Groupon chairman and co-founder Eric Lefkofsky told COO Rob Solomon to grab some clean underwear. They were going to fly from Chicago’s Midway Airport to San Jose to meet with Google on a chartered jet. Mason graduated from Northwestern University only 7 years before where he majored in music. He still has boyish looks, acts goofy during investor calls even though he is in charge of a multi-billion company, and once showed up to lunch with a billionaire wearing a bright green tracksuit. Mason did not want to give up his creative personality even though he is CEO.
Lefkofsky was known for taking other web companies public. He had taken both InnerWorkings and Echo Global Logistics public. Both are supply chain companies. At 42-years-old Lefkofsky himself is very young, but is a season entrepreneur.
When Lefkofsky was negotiating with Google, they both discussed how great the partnership would be. Lefkofsky, Mason, and Solomon were brought into a conference room with a whiteboard. They negotiated for two hours with Google officials until they hit the number $5.75 billion. Groupon took this number with them to the board of directors. The trio returned to Rosewood Sand Hill, which is a luxury hotel in Menlo Park on Sand Hill road where many high-tech deals have been celebrated. It was an amazing deal, but the only problem was the Google could not guarantee that the deal would be closed. Google did offer $800 million if the deal did not go through, but if antitrust concerns halt the sale for a year to 18 months and if the Justice Department decided to prevent the deal from happening, Groupon could be severely harmed.
Mason and Lefkofsky took several calls from the board from Groupon’s headquarters after the California trip. The conversations were urgent and it centered around the difficult question about whether they would be nuts for turning down the deal. Groupon had solved the problem of connecting local merchants to an e-commerce service to offer bargains at a high volume.
Google would be able to provide Groupon with some advantages like integrating daily deals into their online search. Groupon would also be able to continue running independently and autonomously just like YouTube. However Mason believed that YouTube sold itself too early. It was too late though. Most of the board supported the sale. However Kevin Efrusy of Accel Partners believed that Groupon could go further. By the second half of 2011 and less than one year later, Groupon’s gross billings had hit $400 million per month. Around early December, Solomon was found of telling his colleagues that if they turned down Google, they would ultimately look either like the biggest idiots or the guys with the biggest balls.
Towards the end of the negotiations, Andrew Mason hired data scientist Nitin Sharma to make a presentation. After crunching some numbers, Sharma projected that Groupon could end up over 10 times larger if they optimized their data processes. He recommended that Groupon stays independent. During the six weeks that Google negotiations were happening, Groupon’s sales hit $50 million per month, which was twice what they had been three months earlier.
It was difficult to predict whether their revenues in 2011 would end up at $1 billion or $2 billion. The most successful Groupon was on November 24, 2010 when a Nordstrom Rack deal sold $50 gift cards for $25 and grossed over $15.6 million. This was 2.5% of Groupon’s cumulative total sales at the time. Groupon was growing at a rapid pace internationally as well. Now numbers were being thrown around by New York investment bankers that Groupon was valued at between $20 billion and $30 billion.
At that point Morgan Stanley and Goldman Sachs started competing over who could be the lead underwriter. Goldman CEO Lloyd Blankfein himself scheduled a visit to visit Groupon’s headquarters for two weeks into the new year so that he could pitch Mason and Lefkofsky in person. On December 3rd, Groupon called Google to kill the deal. “Emerging from that process, it felt like a butterfly emerging from the cocoon,” said Mason in an interview with The Wall Street Journal. “We went through a period of introspection and self-doubt, and then ultimately emerged in a state of supreme confidence. Like, OK, we’re the best company in the world.”