Acquisitions and Antitrust Scrutiny for Big Tech Firms

Alphabet's (GOOG, GOOGL) Google among tech giants under regulatory microscope

Large technology companies are coming under more scrutiny lately from the legal system and regulators. For instance, Apple Inc.'s (AAPL) App Store policies were challenged in a lawsuit brought by Fortnite maker Epic Games, Inc. The U.S. Senate conducted hearings with a Facebook, Inc. (FB) whistleblower. Antitrust regulators have turned their attention to Amazon.com, Inc. (AMZN) and Alphabet Inc.'s (GOOG, GOOGL) Google for alleged anticompetitive behavior as well.

Key Takeaways

  • Big tech companies have been coming under increasing scrutiny from regulators and the legal system.
  • The FTC released a report detailing significant acquisition activity by tech companies from 2010 to 2019.
  • It remains to be seen how the increased attention will affect these companies and their stocks.

Additionally, the Federal Trade Commission (FTC) released a report in September detailing how large tech firms made several corporate acquisitions under the FTC-mandated reporting threshold of $92 million. Specifically, the FTC noted that Facebook, Apple, Amazon, Google, and Microsoft Corporation (MSFT) made 616 such acquisitions from 2010 to 2019 that were each worth at least $1 million.

Relative to market capitalization—shareholders currently value each of the named firms at more than $1 trillion—the deals identified by the FTC are small. For instance, consider the case of Google parent Alphabet, which has a current market cap of more than $1.8 trillion. If it acquired a company for $1 billion, the value of that deal would be less than 0.1% of its total market cap.

While an acquisition like that may be considered "small" for the parent company relative to market cap, Alphabet has competed several of them. The FTC examined 819 deals spanning 10 years, an average of nearly six deals per month, in its report—and that's just among five large technology companies. 

Across all industries, the numbers grow substantially. According to figures on its website, the FTC needed to review 359 transactions last month. In September 2020, the number was 177. A blog post from August 2021 indicated the FTC's ability to investigate is hampered by the "tidal wave of merger filings" and "capacity constraints."

This would seem to be problematic for firms like Google, which has a history of merger activity across different business segments. It broke into online advertising by acquiring advertising technology firm DoubleClick in 2007 for $3.1 billion.

Such dealmaking has allowed the company to grow into new markets or expand further into ones in which it already does business. Consider Google's four latest investments:

Latest Acquisitions by Google
Company Acquisition Price Business Segment(s)
Fitbit $2.1 billion Data, wearables
Provino Undisclosed Cloud hardware
Dysonics Undisclosed 3D audio
Playspace Undisclosed Collaboration

The Bottom Line

Since Google's recent acquisitions span different parts of the business, it's possible that they could attract heightened attention from the FTC and other regulators. Technology firms are operating in a new environment, as President Biden has made it clear that examining big technology firms is a priority. Still, it remains to be seen how the increased attention will affect these companies and their stocks. 

Disclosure: At the time of publication, the author holds long positions in MSFT, GOOGL, and GOOG in personal and managed accounts but no positions in AMZN or FB.

Article Sources
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  1. U.S. District Court, Northern District of California. "Epic Games, Inc. v. Apple Inc."

  2. The New York Times. "The Key Takeaways From Frances Haugen's Facebook Testimony."

  3. Investopedia. "More Antitrust Concerns for Amazon (AMZN) Investors?"

  4. Federal Trade Commission. "Non-HSR Reported Acquisitions by Select Technology Platforms, 2010–2019: An FTC Study."

  5. Federal Trade Commission. "Premerger Notification Program."

  6. Federal Trade Commission. "Adjusting Merger Review to Deal With the Surge in Merger Filings."

  7. The New York Times. "Google Buys DoubleClick for $3.1 Billion."

  8. Reuters. "Google Closes Fitbit Deal as U.S., Australia Probes Continue."

  9. IEEE Spectrum. "Google Snaps Up Network-on-Chip Startup Provino."

  10. Protocol. "Google Acquires 3D Audio Startup Dysonics."

  11. Playspace. "A New Path for Playspace."

  12. CNBC. "Biden Signs Order to Crack Down on Big Tech, Boost Competition 'Across the Board'."

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