Top News

With a US$560-billion war chest, Big Tech goes on pandemic M&A spree despite political backlash

Big technology companies are hunting 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 Inc., Inc., Apple Inc., Facebook Inc. and Microsoft Corp. have announced 19 deals this year, according to Refinitiv data from May 26, representing the fastest pace of acquisitions to this date since 2015.

The Financial Times on Tuesday reported Amazon was also in advanced talks to purchase the self-driving car company Zoox, which was valued at US$3.2 billion two years ago. Meanwhile, Facebook in March announced its largest international investment yet, purchasing a US$5.7 billion stake in the juggernaut Indian telecoms operator Reliance Jio.

The deals mark a departure from the 2001 recession and the 2008 financial crisis, when tech companies largely retreated from big purchases following dips in the stock market.

“One big difference between now and the last financial crisis is the cash balances of the tech majors are in the hundreds of billions, all effectively onshore, due to the Trump tax changes,” said John Gnuse, a tech M&A adviser at Lazard, referring to president Donald Trump’s move to lower the rate on repatriated offshore profits.

The dealmaking streak also represents a further consolidation of Big Tech’s power in the middle of the COVID-19 crisis, as the groups look to capitalize on their record valuations and resurface as 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 affected by the crisis — risk widening the gap between the largest players and their smaller competitors.

“This crisis threatens to further entrench the power of Big 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 as the biggest winners of Covid-19 unless some legislative action is taken.”

The big buy-up

Analysts have been waiting for an increase in tech mergers and acquisitions spurred by the swelling coffers at the five Big Tech companies, which together held more than US$560 billion in cash and marketable securities at the end of the first quarter, according to public filings.

Atif Azher, a partner at the law firm Simpson Thacher, said many tech executives were not waiting for the end of the pandemic to return to doing deals, and were getting increasingly comfortable with making strategic acquisitions in the current climate.

Copyright Postmedia Network Inc., 2020

Did this story inform or enhance your perspective on this subject?
1 being least likely, and 10 being most likely

Recent Stories