04 Jun Big Tech’s Pandemic Buying Spree
While the pandemic has sparked an overall slowdown in the world of M&A, big tech companies are seeking out deals at their fastest ever pace in recent years. Amazon, Apple, Microsoft, Facebook, and Google/Alphabet have collectively announced 19 deals this year. That’s the fastest dealmaking pace since 2015.
The Financial Times reports Amazon is in talks to purchase Zoox, a self-driving car company with a $3.2 billion valuation from two years ago. Facebook announced in March its purchase of telecoms operator Reliance Jio for $5.7 billion. This is a different world from the one following the 2001 recession and 2008 Great Recession, when tech companies fled from big purchases.
This streak of M&A marks a deeper consolidation of big tech power. Companies are hoping to channel record valuations into bigger profits and a chance to dominate the market. Antitrust advocates, by contrast, continue to lambaste such deals.
Big Tech’s Buying Spree
Experts have been predicting a huge buying spree buoyed by swelling profits at the five big tech companies, which collectively have more than $560 billion in cash and assets. Many executives are simply unwilling to await the end of the pandemic to return to dealmaking, particularly since they may get better deals on smaller companies now. The acquisition of smaller startups is a huge trend. For example, Facebook recently paid $400 million to acquire Giphy, a hosting platform for animated GIFs, in the hopes of integrating the company’s massive image library into Facebook properties.
Big tech also continues to evaluate deals that could shape emerging markets, particularly as the pandemic continues to change how people work.
Big Tech Concentration
This dealmaking spree comes in the wake of increased political concerns about growing monopolies. The FTC recently embarked on a review of small purchases, while many Democrats have pushed for bands on predatory purchases made by companies with revenues in excess of $100 million. Meanwhile, antitrust advocates are skeptical of the FTC, asserting that they do not see reining in big tech as a core mission.
What’s Ahead for Big Tech
Tech companies are increasingly considering stock-based transactions thanks to an increase in their stock prices. Yet large transactions remain relatively unlikely. Acquirers see no benefit to rushing into these transactions during a pandemic. They’re risk-averse, and want to wait until the dust settles. But settle it will, and when it does, we can anticipate a quick recovery in the tech market.