Facebook Acquired Waze, and Then Didn’t

It has come to light that social media giant Facebook once nearly acquired the popular navigation app Waze, according to a recent post on Post by former Waze CEO Noam Bardin.

Yes, Facebook.

This revelation comes a decade after Google successfully acquired Waze for a staggering $1.15 billion in June 2013 and sheds light on the dynamics and decision-making processes that unfolded behind the scenes during that crucial period.

Bardin’s story traces back to late 2012 when Apple Maps launched to widespread criticism, leading to Apple CEO Tim Cook mentioning Waze as a potential alternative. At the time, Waze had already become a mainstream app with 10 million monthly active users, prompting the founders to take some pause and carefully consider whether they wanted to raise another round of funding or entertain acquisition offers that were starting to surface.

The founders sat down to map out their valuation framework, and not all of them were inclined to sell. They agreed that if an offer came in below $750 million, they would opt for another funding round. If, however, an offer exceeding $1 billion were put on the table, that would be reason enough to sell. If the offer fell within the range of $750 million to $1 billion, the decision would depend on the identity of the acquirer and the potential for continued work within the company.

Interestingly, the founders believed that Microsoft, under the leadership of Steve Ballmer, would need to offer more than $1 billion to secure the acquisition, while Facebook could potentially come in at $750 million.

Before engaging in acquisition discussions, the Waze team felt the need for a strategic partner to assist with user acquisition. They initiated talks with Microsoft, Amazon, and Facebook. Facebook emerged as a natural fit from a product perspective especially given their plans to launch a mobile phone, and they sought to own their location stack for their upcoming mobile effort. Intensive discussions ensued, outlining potential integration plans.

One key lesson learned during this period, wrote Bardin, was the importance of establishing early connections with the product teams of potential acquirers. Building relationships and exploring business opportunities before entering into acquisition negotiations proved to be a critical prerequisite for success. By the time the acquisition process began, the Waze team had already met with the CEOs and senior teams of Google, Facebook, Microsoft, Amazon, and Apple.

During strategic partnership negotiations, Facebook insisted on a Right of First Refusal (ROFR) clause, which would allow them to match any offer made by a competitor. However, Waze considered this clause problematic, as it would hinder negotiations with other potential buyers. Eventually, a compromise was reached, and Facebook secured a ROFR only for Google, removing potential roadblocks to the acquisition process.

The Waze team reached out to Google before finalizing their agreement with Facebook as they wanted to ensure that they didn’t miss out on any potential opportunities with Google. To their surprise, Google expressed interest, and a meeting was arranged. The discussions with the Google Maps team proved fruitful, as both parties shared a deep understanding and appreciation for the intricacies of the mapping space. After the meeting, Google’s Corp Dev lead contacted the Waze team to express their interest in exploring an acquisition.

Price negotiations ensued, with the Waze team indicating their expectation of a $1 billion deal, based on the recent acquisition of Instagram for the same amount. However, the actual offer from Google caught them off-guard. The Corp Dev lead called to explain the terms and presented an offer of $450 million.

This came as a shock to the Waze team, as they were confident in their valuation framework, which had anchored their expectations at $1 billion.

Without hesitation, they rejected the offer, knowing that starting negotiations at a lower amount would never bring them close to their desired valuation.

Although the decision to decline the offer left the board furious, the Waze team remained firm in their conviction. They did not contact Google again and instead returned to Facebook with news of the acquisition offer they had received from a major competitor. Given the strong relationship they had already established with Facebook, the head of Corp Dev swiftly reached out, asking for a non-negotiable number. The Waze team responded with $1 billion, and within hours, a term sheet for the acquisition was in their inbox. Without seeking other potential buyers, they promptly signed the term sheet and on paper, Facebook acquired Waze with just two emails and a phone call.

The due diligence process began, but soon it became apparent that there were significant gaps in understanding between the two teams. While Waze considered the deal almost finalized and expected validation of what had been discussed, Facebook viewed the due diligence as the starting point to determine their plans for Waze. The lack of clarity regarding ownership and decision-making led to mounting tensions and delays. Days went by without progress, leaving the Waze team uncertain about the next steps.

Adding to the challenges, there was a notable lack of chemistry between the teams. The relationship between Mark Zuckerberg and the Waze team did not click, and the young engineers responsible for conducting due diligence belittled the achievements of Waze’s experienced and accomplished engineers. This age and mentality gap, combined with the absence of a clear owner on the Facebook side, further complicated matters and eroded confidence in the acquisition process. The Waze team began to question whether they had made a mistake and if Facebook was genuinely committed to the acquisition.

When news of the acquisition started to leak, Google reached out and asked if the rumors were true. An hour after confirming they were, Google swooped in with an unsolicited term sheet for $1.15 billion which forced Waze management back to the table.

Facebook declined the opportunity to top the offer, Waze closed the transaction “in eight intensive days,” and history was made for the Israeli tech startup.

Through this experience, Bardin shared he learned a valuable lesson about the deeply personal nature of acquisitions. They realized that success in such negotiations depends not solely on strategy and business considerations, but on the dynamics between the people involved. The human element outweighs key performance indicators and product features. The absence of a clear owner and the subsequent breakdown in communication demonstrated the importance of establishing strong personal connections throughout the acquisition process.

The story of Facebook’s near acquisition of Waze stands as a testament to the critical role that people and relationships play in shaping the outcome of such high-stakes negotiations.