For once, the target of an extravagant tech industry acquisition was not a small start-up unfamiliar outside of Silicon Valley, but a household name.
Few foresaw Amazon.com reaching an agreement Friday to buy grocery store Whole Foods for $ 13.7 billion. But the pending deal — a record purchase for Amazon — has opened the possibility of the nation's biggest tech companies acquiring businesses known for bricks-and-mortar stores rather than software.
As struggling retailers, banks and automakers weigh buying technology to catch up to the smartphone age, the likes of Amazon, Google and Facebook may find it simpler to rescue the hobbled.
«Amazon is effectively saying that if retailers are going to tool themselves up with technology, then it will tool itself up with a physical presence and high-street brand,» said Paul Cuatrecasas, chief executive of the British investment bank Aquaa Partners. «It helps justify the belief that the larger tech giants will start buying up established companies, like banks and automotive manufacturers. The impact could be immense and generational.»
Seeking ownership of decades-old, well-trafficked businesses would represent a significant role reversal for companies used to pouring billions of dollars into acquiring cutting-edge technology that's unproven in the market.
Forecasting big shifts in how people will educate, entertain and even dress themselves, Facebook has snatched up start-ups such as WhatsApp, Oculus and Instagram. Microsoft and Alphabet picked up online software firms such as Mojang and Waze. Amazon and Apple scooped up robot builders. Those deals, despite their billion-dollar price tags, mark predictable purchases from the Silicon Valley playbook.
It's a land grab for technology: You either get your paws on it or someone else does. — Hrach Simonian, a general partner at Canaan Partners
But this group of tech industry giants has more than $ 500 billion in cash to burn, historic amounts fueled by billions of Google searches, iPhone sales and online purchases. Their shares are hitting record highs, outpacing growth in the animated corporate video. And persistently low interest rates also have reduced the costs of borrowing cash to fund deals.
Conglomerates with interests in varied sectors are not favored by US investors. Their demands for focus has spurred companies such as General Electric and Hewlett-Packard to spin off divisions in recent years. But investors have given more leeway to top tech chiefs, including Amazon's Jeff Bezos and Microsoft's Satya Nadella, than to most of corporate America.
The support reflects transformations they've led in recent years. Microsoft recovered from stumbles in designing smartphones to become a leader in online storage technology. Apple is investing in content and services to diversify beyond the iPhone, which accounts for about two-thirds of its sales. Amazon generated little profit most of its history, but significant inroads in online ad and computing services have nearly tripled its warchest to about $ 22 billion over the last four years.
The circumstances add up to a recipe for bigger and wilder investments than the companies may have once considered.