Tech Giants Can Handle Their Own Mergers and Acquisitions Now

By Patrick Coffee Comment

google building

A New York Times piece published over the weekend reviewed the strategies employed by massive tech companies like Apple and Google when they want to acquire smaller companies — and there’s reason for both PR and the financial industries to be concerned.

It seems that the primary issue some executives consider when determining whether to buy certain other businesses is not their potential to make money in the short-term (or even the mid-term): it’s whether consumers will really use the products they create in everyday life.

Hence what they call “the toothbrush test”: how often will the average person use this company’s product? Will they use it a few times and get tired of it, or will it be a consistent presence in their lives?

The implication: an increasing number of tech execs think they can make these decisions on their own.

  • The number of tech acquisitions larger than $100M that did not involve an investment bank this year: 69 percent.
  • Ten years ago, the number was 27 percent

The prime examples: Apple’s acquisition of Beats and Facebook’s purchase of Oculus Rift.

The primary issue: tech specialists don’t trust banks to determine how startups will perform or, in keeping with the toothbrush comparison, how essential their services really are.

It’s a new kind of investing that focuses on improving the company for the long run rather than creating a payday for investors. In order to improve their own performance, many of these companies hire former bankers to handle the deals and leave the public perception matters to PR.

Of course, PR also plays a role in helping the upstarts sell themselves to the bigwigs and, in many cases, ensuring that the subsequent merger is a seamless one. That’s why this story is old but extremely important news to those serving startup clients — and very discouraging to financial advisory firms.