Something unusual was underway in early 2010 at Invite Media, a Philadelphia-based advertising technology startup. Under normal circumstances, it collected money from marketers and used it to buy digital ads. But over two days that spring it suddenly began paying for a wave of ads without waiting for checks to come in, using its own money instead. The company also paid off all its outstanding bills regardless of their due dates, sending its bank account balances plunging.
It would normally be irrational for a company to burn cash unnecessarily, but in this case burning cash was the whole point. Invite’s co-founders were finalizing a deal to sell the company to Google, and reducing Invite’s assets was a key part of their preparation. By drawing down its bank account, Invite could reduce its total assets to a low enough level that the companies could avoid submitting their deal for review to the Federal Trade Commission, according to three people familiar with its finances.
“What we did was we collected as much accounts receivable as possible and immediately paid out everything we could so we didn’t have enough money on the books to trigger the FTC stuff,” Michael Provenzano, one of the company’s co-founders recalled in an interview. Provenzano said he effectively went to the company’s bank and said, “We need you to be okay with our account dropping to a dollar.”
The strategy worked. Google bought the company for around $80 million in 2010. It didn’t ask the FTC for pre-approval under the Hart-Scott-Rodino Act, which requires that companies do so when making acquisitions large enough to raise competitive questions.
Now that the market power of Google and other huge tech companies has come under new scrutiny, the FTC is re-examining hundreds of deals that, like Invite, didn’t spark its interest when they happened. Officials at the commission now say they may have missed the significance of some deals that were small enough to avoid Hart-Scott-Rodino review when they happened.
FTC officials began scrutinizing these deals as far back as last fall, when they met with a representative from a startup that had been bought by a large tech company in a deal that wasn’t reviewed at the time but could be scrutinized now, according to a person familiar with the matter who asked not to be named discussing private conversations. Mark Rosenberg, a researcher at a Yale University antitrust group, pegged Invite as “absolutely a viable candidate” for review under the new special order. He also flagged Google’s acquisition of the Apture, Amazon’s purchase of Blink, and Facebook’s purchase of Beluga and Gowalla.
The market for online display ads was a multibillion-dollar opportunity for Google, and its success in developing advertising technology was a primary way it became one of the world’s most valuable companies. Acquisitions were key to this transformation. Google purchased the advertising exchange DoubleClick for $3.1 billion in 2007, and the mobile advertising company AdMob for $750 million in 2009.
Both deals prompted antitrust reviews, with accompanying costs. “The review meant we had eight months of limbo that ended up being really hard because we didn’t know what was going to happen,” AdMob founder Omar Hamoui said, according to an excerpt of the book “Mad Men of Mobile.” “I had gone from an overwhelming high to a crushingly disappointing low, which was extremely frustrating.”
In retrospect, Invite had been serving as an important independent piece of the advertising market. As a startup, it had created a software tool, called a demand-side platform, to make it simpler for marketers to buy ads online. The service allowed them to shop for advertising space on multiple platforms at once. Ad purchasers didn’t need to go to Google for ads and Yahoo for banner ads – Invite could help marketers find the best deal at a given time and buy from either platform.
After acquiring Invite, Google made the startup’s tech a core piece of its suite of ad tech tools. By doing this, Google removed the neutral layer that separated it from ad buyers, according to Bill Demas, who led one of Invite’s main competitors for many years. The edge Google got from combining tools like Invite into a single product amounted to an “unfair advantage,” he said. “It was a very prescient acquisition because it was done so early.”
A spokeswoman for the FTC declined to comment. In an emailed statement, a Google spokeswoman said that “former Google employees have created more than 2,000 startups, including companies like Pinterest, Quip and Instagram – that’s orders of magnitude more than the number of companies we’ve acquired. We have a long track record of working constructively with regulators and answering questions they have about our business.”
Provenzano said he remembers being given a spreadsheet of tasks to accomplish before the deal could close. One of the key tasks: drawing down the company’s bank account. Provenzano was sure about how and why this was done, he said, “because I moved the money.”
Provenzano said he couldn’t remember whether Google instructed Invite on how to avoid the additional scrutiny, nor could David Horowitz, an Invite board member. But Horowitz said the company would have taken its cues from Google. Another person close to the deal confirmed that the company worked to avoid Hart-Scott-Rodino review, but declined to speak on the record for fear of offending Google.
It is legal for companies to lower the size of a deal or cut down on assets to avoid Hart-Scott-Rodino review, according to Paul Jin, a partner at the law firm Goodwin Procter. “It could cause the FTC to say I don’t like that, it’s suspicious,” he said, but he added that isn’t against the commission’s rules and is fairly common.
Two of Invite’s four co-founders – Nat Turner and Zach Weinberg – founded another startup called FlatIron Health, with significant financial backing from Google Ventures. They sold it for $1.9 billion to healthcare giant Roche in 2018. Both declined to comment, as did Jason Harinstein, the man who helped drive the Invite acquisition for Google. He currently serves as FlatIron’s chief financial officer.
It is not clear what the FTC hopes to achieve with its review of past acquisitions. The commission has held open the possibility of unwinding past deals. Given the ongoing investigations by the FTC and the Department of Justice, it may instead issue a report of its findings, according to Daniel Crane, a law professor at the University of Michigan. That report could provide fodder for a larger investigation or for Congressional legislation, he said.
Demas, the former Chief Executive Officer of Turn, the Invite competitor, said the deal “frightened” his team. But it took a few years for the consequences to play out, as Google integrated Invite’s software into its own codebase. Eventually, Google began to prevent competitors like Demas from selling its ad inventory, leading business to slow.
There were concerns about Google’s market power at the time. The FTC conducted a wide-ranging investigation into Google’s search advertising business, but closed the case in January 2013 without fining the company. “The evidence did not demonstrate that Google’s actions in this area stifled competition in violation of U.S. law,” the FTC said at the time.
Demas said that the FTC summoned him to Washington some months later to discuss Google, but nothing seemed to come of it. He said government officials are at a disadvantage trying to keep up with a field evolving as quickly as advertising technology. “They really knew their stuff,” said Demas, of the FTC lawyers he met with. “But you have to anticipate some of these moves.”
Demas’s company struggled in the years after Google’s acquisition of Invite. Turn cut staff in 2015, and two years later sold itself to a subsidiary of a Singaporean telecommunications firm for about half the price of its valuation in 2013, when it had been considering an IPO.
Invite’s co-founders felt they had lucked out by selling before Google bought one of its rivals, according to Provenzano. “I don’t know what would have happened if we kept going forward. Obviously we would have been competing with Google,” he said. “Why go through that battle?”
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