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Google Considering Private-Equity Alliances

Google Actively Considering Acquisitions Uses ‘Toothbrush’ Test
Google Inc., based in Mountain View, California, is using acquisitions to add products that can keep users glued to its online services. Photographer: David Paul Morris/Bloomberg

Google Inc., actively on the lookout for acquisitions, is for the first time considering forging alliances with private-equity firms to help it structure deals.

Buyout firms can assist an acquirer by providing needed financing or advice on how a target could be restructured or carved up after a deal closes. While Google may invest cash to get a return on the investment, it may also take part in a deal to acquire an asset, said Don Harrison, Google’s mergers and acquisitions chief.

Google, seeking to boost sales through acquisitions, uses an approach it dubs the “toothbrush test” to assess how frequently a potential target is used by consumers, Harrison said in an interview yesterday at the Bloomberg Next Big Thing Summit in Half Moon Bay, California. The company, operator of the world’s most popular search engine, is closing deals at a pace of about one every other week, he said.

“We apply something called the toothbrush test, which is we ask ourselves, ‘Is this something people use once or twice a day and does it solve a problem?’” Harrison said in televised remarks.

More than 11,000 mergers and transactions have been announced this year, with an average size of $168 million and a total value of $1.04 trillion, data compiled by Bloomberg show. The average size of a technology deal was $93.4 million, and private-equity firms were the top acquirers, according to the data.

Google Deals

“There are opportunities,” Harrison said. “At some point I think you’ll see a transaction.”

Google, based in Mountain View, California, bought Waze Inc. for $1.1 billion earlier this month, gaining technology that draws on user input to make maps more accurate.

“Crowdsourced information will allow us to make our maps vibrant and useful, more accessible,” Harrison said.

While Google takes valuation into consideration during acquisitions, the company will pay a premium for an asset with “aggressive” user growth, he said.

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