Google, Yelp Deal Done but Who Walked Is a Live Debate

Reports from The New York Times differ but Google probably backed away from buying Yelp after the local business search and review startup said it had a better offer. Google has acquired dozens of companies in 11 years; it knows how to negotiate. This gamesmanship may delay the deal, but it isn't likely to quash the deal outright because the synergies between Google and Yelp are so great. Expect Google to renew talks with Yelp in 2010, if not sooner. However, if the deal doesn't get done this week, it may not get done until January.

News Analysis: Who backed out of Google's bid to buy local business search specialist Yelp for $500 million?

TechCrunch reported the initial deal and its sudden dissolution, but the New York Times' Internet reporters have different takes of how the bid collapsed.

The Times' Claire Caine Miller claimed Yelp shut talks down backed out of acquisition talks, citing two people briefed on the talks. The Times' Miguel Helft, meanwhile, said Google was rattled by Yelp's lack of transparency.

Google declined to confirm with eWEEK talks of any deal with Yelp, which provides local business reviews. Yelp could provide a large well of user data and advertising specialists for Google to leverage in its bid to improve local business offerings versus Microsoft Bing and Yahoo.

Sources told Miller Yelp was being courted by another vendor willing to pay $750 million, or 50 percent more than Google would pay. However, Miller also noted that Yelp does not want to sell to any other company for more money because it wants to join a company that it believes is the right fit. That company was Google.

If that's truly the position Yelp had, it didn't come off as such to Google. Helft wrote that after the two sides tentatively agreed on a deal, Yelp came back to Google saying it had received a higher offer from another party.

AllThingsDigital said it wasn't Microsoft, which seemed shocked by Google's bold bid. Perhaps the suitors are Yahoo or freshly content-oriented AOL?

Trying to consider the larger offer could have been what drove a wedge between the companies. That and the fact that Helft said Google believed Yelp leaked word of the talks to the press.

All of this is gamesmanship (or brinksmanship, in business parlance) to try and get a better price from a prospective buyer. Sometimes this backfires, Anthony Alfonso, an M&A expert with Trenwith Valuation, told Miller. He also said Yelp is probably posturing and does not have a better offer.

Though both Miller and Helft said a deal between Google and Yahoo is not out of question in the future, the smart money is on the idea that Google called Yelp's bluff and walked away. Google has acquired dozens of companies in 11 years; it knows how to negotiate. After buying only two companies in 2008, Google has acquired six very different specialists since August.

They are: video compression software maker On2 Technologies, Website ID provider ReCaptcha, mobile display ad power Admob, softphone maker Gizmo5, ad provider Teracent, and real-time document management specialist AppJet.

Regardless of the veracity of this, he said, she said M&A tale, M&A is on the rise toward the end of 2009, according to researchers at the 451 Group.

"Overall, M&A spending in the back half of the year is running 50 percent higher than the combined spending in the first two quarters," wrote the 451 analyst Brenon Daly. "That has been driven by a number of large transactions announced since last summer that probably would have been inconceivable in the winter."

Google didn't have a hand in any of those blockbusters, but who did? Xerox moved on Affiliated Computer Services and Dell grabbed Perot Systems. Cisco Systems set its sights on Tandberg, IBM nabbed SPSS and HP grabbed 3Com, to name a handful.

Expect Google to renew talks with Yelp in 2010, if not sooner. However, if the deal doesn't get done this week, it may not get done until January.

With Christmas coming Friday, many U.S. businesses are closing shop early this week. While news never takes a vacation,  reporters do; Google wouldn't want to miss out on the deluge of positive press over this master search and ad stroke versus Microsoft and Yahoo.