What is happening to M&A deals by Big Tech companies?
Big Tech companies such as Apple, Amazon, Microsoft, Alphabet and Facebook are known for frequently engaging in M&A. During 2019 the 5 most valuable tech companies only spent $7.2 Billion on acquisitions. Although this sounds like a large number, in the realm of Big Tech companies this is well below the usual spending rate. The companies spent over double that amount in both 2017 and 2018. However, those two years were still no match to the $26 billion spent during 2016!
Why is there a drop in the size of M&A deals?
The legal implication of large-scale M&A, especially with regards to antitrust and competition laws could be one of the reasons why headline grabbing M&A deals by Big Tech firms has tailed off. Richard Waters from the FT believes this could be due to regulators and politicians having an overt goal to block acquisitions by Big Tech firms and stop them consolidating their power. It can also be said that Big Tech firms are themselves staying away from such acquisitions to avoid catching then attention of regulators such as the CMA and FTC.
The largest acquisition of 2019 had been Alphabet’s purchase of Looker for $2.4 billion. Looker is a data analytics company and the acquisition of this company is to strengthen Google’s cloud computing division (an area in which they are behind Amazon and Microsoft). However, even this seemingly small acquisition was enough for the UK’s regulator the CMA to question this, by saying they are open to comments from anyone who thinks this deal may hurt competition.
Another reason for this, is because the Big Tech firms are attempting to consolidate their power in capturing the next ‘big thing’, especially AI firms. Many of these deals are often small and not large in size as they are buying startups. Richard Waters from the FT believes this means M&A will still play an important role in how Big Tech companies consolidate its position, even if there is a lack of megadeals. However, regulators are even becoming increasingly weary of such small deals; the United States FTC has asked the five biggest tech companies to provide information about their many ‘small’ deals in the past decade in a bid to understand how this may affect competition. How they will use this data is unclear, one possibility could be to understand the data and try and intervene more actively in any deals in the future. Having said that, it is likely that both big tech companies and regulators will find it difficult to spot the next ‘big thing’ given the risk of buying and growing startups.
By Jaidaksh Anilkumar