High valuation deal-making in the tech sector
In the previous articles of this series, we discussed the details of Facebook’s (FB) acquisition of Oculus and how will it benefit Facebook. Here, we’ll discuss a broader trend in the technology sector over the last few years—that of high-valuation deal-making. As the below graph shows, Facebook’s acquisition of WhatsApp stands first in terms of valuation, at $19 billion. Google’s (GOOG) acquisition of Motorola for $12.5 billion comes second. Microsoft’s (MSFT) acquisition of Skype for $8.5 billion comes third, while Microsoft’s acquisition of Nokia (NOK) for $7.5 billion comes fourth. Google’s acquisition of Nest for $3.2 billion comes fifth, and Facebook’s acquisition of Oculus for $2 billion comes sixth.
The tech sector is seeing rapid landscape changes
To survive in the rapidly changing technology sector, companies need to innovate continuously. Companies look to acquire other companies and buy others’ innovations since innovating itself comes at a high cost and requires lot of time. Time comes at a premium in the tech sector, where technology obsolescence is very common. For example, Motorola was the leader in the mobile phone sector when Apple (AAPL) disrupted it with the introduction of the iPhone. What followed then was other mobile phone companies starting to copy the innovations that made Apple’s products famous.
Similarly, though Facebook has been a clear leader in the social media sector, it didn’t see much growth in mobile—especially in the instant messaging segment. That’s where Facebook saw WhatsApp potential and acquired the company. Google has also made a few big acquisitions, such as Motorola and Nest. It acquired Motorola mainly for its patents, to protect itself from patent lawsuits. Nest was another big acquisition for Google, which is best known for making a smart home thermostat and smoke alarm system that saves energy.
Microsoft is another player trying to capture a niche for itself in the mobile and social media sector. In mobile, it recently announced its intention to acquire Nokia’s mobile phone business, and in social media, it acquired Skype in 2011.