Big technology companies are looking for deals at their fastest pace in years, racking up acquisitions and strategic investments despite increased regulatory scrutiny during the coronavirus-led market turmoil.
Alphabet, Amazon, Apple, Facebook and Microsoft have announced 19 deals this year, consistent with Refinitiv data from May 26, representing the fastest pace of acquisitions to the present date since 2015.
The Financial Times on Tuesday reported Amazon was also in advanced talks to get the self-driving auto company Zoox, which was valued at $3.2 billion two years ago. Meanwhile, Facebook in March announced its largest international investment yet, purchasing a $5.7 billion stake within the juggernaut Indian telecoms operator Reliance Jio.
The deals mark a departure from the 2001 recession and therefore the 2008 financial crisis, when tech companies largely retreated from big purchases following dips within the stock exchange .
“One big difference between now and therefore the last financial crisis is that the cash balances of the tech majors are within the many billions, all effectively onshore, thanks to the Trump tax changes,” said John Gnuse, a tech M&A adviser at Lazard, pertaining to president Donald Trump’s move to lower the speed on repatriated offshore profits.
The dealmaking streak also represents an extra consolidation of massive Tech’s power within the middle of the Covid-19 crisis, because the groups look to maximize their record valuations and resurface because the dominant players in emerging sectors.
Antitrust advocates have warned that such opportunistic deals—some of which involve bargain purchases of start-ups whose business models were suffering from the crisis—risk widening the gap between the most important players and their smaller competitors.
“This crisis threatens to further entrench the facility of massive Tech,” said Sandeep Vaheesan, legal director at the Open Markets Institute, a think-tank that studies corporate concentration. “These companies are already extraordinarily powerful, but they’re well positioned to emerge because the biggest winners of Covid-19 unless some legislative action is taken.”
The big buy-up
Analysts are expecting a rise in tech mergers and acquisitions spurred by the swelling coffers at the five Big Tech companies, which together held quite $560 billion in cash and marketable securities at the top of the primary quarter, consistent with public filings.
Atif Azher, a partner at the firm Simpson Thacher, said many tech executives weren’t expecting the top of the pandemic to return to doing deals, and were getting increasingly comfortable with making strategic acquisitions within the current climate.
“People are beginning to realize that this might be the new normal for a few period of your time . . . They’re trying to seek out how to proceed, and for a few industries there seem to be some attractive opportunities,” said Mr. Azher.
Besides Facebook’s Jio purchase, big tech companies have mostly looked to accumulate smaller start-ups in areas starting from gaming to cloud computing—deals that are expected to profit from current lockdown measures also as potentially longer-term shifts in behaviour like remote working.
Earlier this month, Facebook paid about $400 million to accumulate Giphy, which hosts an enquiry engine for animated images referred to as GIFs, with a view to integrating the company’s image library into Instagram and other apps.
Giphy had generated about $19 million in annual revenues before the acquisition, meaning Facebook paid quite 20 times that quantity for it, consistent with people briefed on the matter. Facebook and Giphy declined to discuss financial details.
Meanwhile, tech companies also are evaluating deals that would reshape emerging sectors like food delivery and mobility technology.
Amazon’s discussions with Zoox followed news that Uber was seeking to accumulate Grubhub during a deal that might create the most important player within the US meal delivery market. Earlier this month, Uber paid $85 million for a 16 per cent stake within the struggling scooter rental service Lime, during a deal that provides the car-booking group the choice to shop for the corporate in two years.
“Concentration writ large”
Big Tech’s dealmaking push comes in spite of growing concerns in Washington about its monopolistic power. The Federal Trade Commission has begun a review of small acquisitions made by the five tech giants dating back to 2010, while the Democrats Alexandria Ocasio-Cortez and Elizabeth Warren have proposed a ban on “predatory” crisis-era purchases by companies with quite $100 million in revenues.
However, antitrust advocates have expressed skepticism that the Department of Justice and regulators can rein in spending by big tech companies, instead seeking to marshal public opinion through measures like the pandemic bill proposed by Ms Ocasio-Cortez and Ms Warren.
“At a fundamental level, the DoJ and FTC can’t be trusted to stop concentration obvious ,” Mr. Vaheesan said. “They not view that as their mission.”
M&A advisers said large tech companies could still look to consolidate industries like cloud computing. Oracle, whose cloud offering has lagged behind peers, raised $20 billion from a debt offering in March, which it said would be put towards future acquisitions and other general corporate purposes.
Tech companies were also considering stock-based transactions following a run-up in their stock prices, advisers said.
“Some of the clear beneficiaries have seen dramatic market [capitalization] creation over the last several months and are inclined to require advantage of that,” said Sam Britton, head of technology, media and telecoms M&A at Goldman Sachs.
George Boutros, chief executive of the tech-focused investment bank Qatalyst Partners, said mega-transactions are still unlikely within the short-term, though companies will still make opportunistic acquisitions.
“Acquirers see no real reason to rush into doing big deals,” Mr. Boutros said. “Those big transformational deals require senior executive confidence and visibility within the outlook, and given the recent rapid recovery within the technology markets, most of them aren’t cheap.”