Introduction to Consolidation Accounting: Google's Acquisition of Waze

Abstract

When Google purchased Israel-based Waze on June 11, 2013, many wondered how the quirky start-up had even gotten noticed. The answer was its product, an app launched from Ra'anana, Israel, that connected users with information about traffic—jams, accidents, shortcuts, cheap gas—and all sorts of driver-friendly data that was crowdsourced from drivers themselves. This acquisition provides an interesting international context for students to understand and apply consolidation accounting. As a single-class introductory-level treatment of consolidations using U.S. GAAP and an Israeli company, the case offers some side insights and perspective on the Israeli economy. Although intended for exploring the mechanics and goals of consolidated accounting methods, the case can be used to explore a few related topics. In addition to understanding this type of accounting, the issue of purchase price allocations is raised, allowing room for discussions related to the potential softness of these numbers at the time of consolidation, as well as multi-period issues and the possible economic consequences that could ensue from alternative allocations. Excerpt UVA-C-2354 Aug. 26, 2015 Introduction to Consolidation Accounting: Google's Acquisition of Waze The parking lot sometimes known as the interstate kept many a commuter in a state of frustration and anxiety. And, as it turned out, sitting idle in traffic was a global irritant; no one liked it. Then a new traffic-pattern app launched from Ra'anana, Israel, in 2009. The app connected users with information about jams, accidents, shortcuts, cheap gas, and all sorts of driver-friendly data gathered from the drivers themselves. The product grew in popularity until a company on the other side of the world noticed it—Google purchased Waze on June 11, 2013. Although Waze's founders became instant millionaires, many wondered: Why sell to Google when Waze could have gone public on its own? And now that Google owned the quirky start-up, what were its plans? Among those watching the acquisition was Gideon Gonen, who was obsessed with these questions and more. As the founder of another innovative tech start-up, he was keen to understand all the details of the deal. He decided to start by looking at the consequences of the Waze acquisition for Google's consolidated financial statements. Israeli Market . . .