Last Friday, after eight intensive days negotiating with Google, attorney Nitzan Hirsch-Falk left Google headquarters in California and went to the San Francisco International Airport. Just as he was about to board a return flight to Israel, Waze CEO Noam Bardin send him a text message asking him to come back.
“Afterward I realized they were just stressed,” says Hirsch-Falk, describing what happened on the day of the most exciting exit seen in Israel in recent years. “They basically needed me to hold their hand. We worked until 6 A.M. Saturday morning and closed the deal.”
By Tuesday evening the money was in Waze’s Israeli bank account. The man who has been with Waze for five years, from infancy to its phenomenal, $1.15 billion exit, can now relax. Together with Bardin, it was Hirsch-Falk who zipped in and out of the conference rooms of all the global technology giants.
This wasn’t the first exit for Hirsch-Falk, a partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg and Co. and head of the law firm’s technology department. His team was responsible for the biggest Israeli high-tech buyouts of the past two years. Waze was the second company he sold to Google, after LabPixies in 2010.
How did you arrive at the sum of $1 billion?
“In the most unscientific way there is. It’s a round number, a sort of dream,” Hirsch-Falk says.
Many hopes were pinned on the young mapping app developer from Ra’anana. Waze was the first Israeli mobile company to become a household name among more than 50 million smartphone users around the world. The process of selling the company began half a year ago, when Waze embarked on another round of financing to gain breathing room to build its revenue model. Bardin and Hirsch-Falk visited all the world’s major funds while at the same time offering the global tech giants the chance to come in as partners.
“The company’s subscriber growth chart was soaring and it seemed a good time to raise capital. We faced enormous excess demand. Everyone wanted to invest .... Suddenly purchase offers also started coming in.”
Hirsch-Falk says he isn’t free to name companies that expressed an interest, but judging by media reports it can be assumed they included Google, Facebook, Amazon, Samsung, Apple and Microsoft.
“Everyone that was interested in acquiring Waze was made the same offer: $1 billion,” says Hirsch-Falk. “Noam made it clear he wouldn’t sell for less.”
The feeling was that Waze was meant to be put up for sale from the start. What did you want to raise capital for?
“The moment most of the owners are venture capital funds that also make up the majority of the board, obviously there’s a tendency to sell. But the fund that held the company believed in it. They didn’t press for an exit and allowed us to work patiently.”
Hirsch-Falk says Waze put most of its resources into increasing its user base and enriching the application, and over the past year it began developing a business model.
“Toward the end of 2012 the company had reached a critical mass of users in regions relevant to advertisers, particularly in the United States. The investors stood to join the company at a relatively high valuation, so for them to profit they needed the company to reach a value of several billion. It’s a long road and not easy. We tried reaching a situation where Waze would have the best of both worlds: keeping its independence while at the same time providing a good exit for its investors.”
Waze received its second offer two months ago, shortly after turning down its first. “The strategic buyer made a much higher offer but gaps arose in negotiations. They wanted to enjoy managerial flexibility and we didn’t receive a commitment that the operations and personnel would remain in Israel. The talks didn’t blow up but simply faded away.”
The fate of Waze employees was one of the main topics discussed in the negotiations conducted by Bardin and Hirsch-Falk with anyone expressing interest in the company, and they succeeded: The employees will divvy up $120 million among themselves, including $75 million in cash bonuses from Google above paying for the stock. Waze will keep its independence for at least four years, the user community will remain separate from Google.
Stay in Israel
“Cofounders Amir Shinar and Ehud Shabtai and CEO Noam Bardin insisted that the company remain in Israel and maintain its brand,” says Hirsch-Falk, adding, “They are fanatically loyal to their community of users, the ‘Wazers.’ It’s in Ehud’s blood.”
Two weeks ago, with Silicon Valley abuzz with rumors that the other offer had fallen through, Google made an offer.
“They approached us, asking: ‘You want $1 billion? You’ve got it.’ It was really quick. We carried out intense negotiations for eight days and worked around the clock. At the outset of negotiations Google already arrived with thick contracts, detailed down to the tiniest screw.
“At Google they are professional in the field of mergers and acquisitions. They work around the clock and have huge teams able to process the commercial, legal, technological and financial information at a furious pace. They had followed the company for a long time. People at Google are very experienced with this type of process and know how to strike a good balance between the desire to be aggressive and understanding that not everything in life is perfect. They knew the right questions to ask and how to expose weak points, but they were also mature enough not to get excited over every minor detail. They too didn’t want to hold up the deal. They told us more than once: ‘Larry [Page, Google cofounder along with Sergey Brin] wants you: We’re here to close [the deal].’ Trust between the sides built up quickly. Within a day it was clear they were serious.
“We were a team of 15 lawyers. Two in my team joined me in Mountain View, and another 12 worked simultaneously from Israel. The folks worked at all hours of the day, both at Pacific Standard Time and local time. At the end of the negotiations it was just Noam and me facing the Google representatives. Amir and Ehud returned to Israel. The folks at Google joked that Noam and I are like Warren Buffett and Charlie Munger. Throughout the talks the [VC] funds were kept in the picture, but none of the funds were with us in the negotiating room. It was important to strike while the iron was hot..
“To the credit of the people at Google, it should be said they were fair. They didn’t take advantage of the fact that they’re a huge company. We absolutely weren’t the weak side in this negotiation. We sped up negotiations with the understanding that dragging them out could only hurt us. Google went along with us. They worked nonstop and on weekends lined up huge teams to do so.”
Couldn’t problems suddenly arise, like the antitrust authority opposing the creation of a navigation application monopoly?
“Google has never made a problematic acquisition in terms of antitrust. If there were a problem they wouldn’t have bought Waze. The business of companies like Google is online advertising. The business model of Waze is also digital advertising. Lucky for us, the figures for Waze in online advertising are low enough,” says Hirsch-Falk with a smile.
Is there a chance of similar deals in Israel in the future?
“[The Waze deal] shatters local myths and gives Israeli entrepreneurs the confidence and daring to do things they were afraid to do before. I don’t think there’s any reason there wouldn’t be more deals of this kind in the future. Even technology giants understand that a lot of interesting things are happening in Israel.”
Was it a defensive move to block a competitor?
“They never said that, and even if it’s true they wouldn’t say.”
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