If someone asked you, what companies will evolve to become stronger after the lockdown? The obvious answer will be to name the entire big tech companies. These include the likes of Apple, Amazon, Google, Facebook, Microsoft.
Big tech is referred to as big tech because of their size collectively and individually. So, to quantify the numbers, the combined market capitalisation of Amazon, Apple, Microsoft, and Alphabet is more than the entire London Stock Exchange taken together. Yes, all the 3,000 companies! Moving on the same theme, if Amazon alone moves 7% up or down it can shed or gain the entire market cap of Boeing.
Big Tech's M&A Deals
The big tech has announced a total of 19 deals this year according to Refinitiv data. And this is the fastest pace of acquisitions since 2015. India has been the focus in this pandemic and giants are betting big on India. The deals by Amazon and Facebook have been very India centric. With also, additional rumours of Google and Microsoft investing in the Indian markets.
Amazon has been the big winner of the pandemic; stock is up 47% from the lows of March. Amazon has participated in funding rounds of insurance policy aggregator BankBazaar and SME lending startup Capital float. Facebook has also been quite active in the markets and is using this lockdown efficiently. Facebook famously has acquired a 9.99% stake in Reliance Jio. This deal with Jio is the largest FDI in technology sector in India’s history.
Other M&A activities have happened with future trends in mind. Most of them are strategic rather than expansion based. These trends also establish that all of the firms are moving forward in strengthening their positions in the market.
Microsoft acquired Metaswitch Networks and Apple confirmed the acquisition of NextVR. Metaswitch is a U.K.-based cloud-based communications products company used by carriers and network providers, this deal will help Microsoft leverage the cloud architecture and 5G for its Azure platform. NextVR deal with Apple will help boost and diversify content in Apple TV+ as NextVR has existing partnerships with sporting leagues. NextVR can also be capitalized to enhance the development of new devices in the pipeline.
And last but not the least, surprising acquisition of GIPHY by Facebook. There has been a lot of debate around what’s the purpose of this US $400 million acquisition. But one compelling reason is that, since GIPHY is a multiplatform based application, Facebook can use it to understand and learn about the hot topics based on what people share on different platforms.
Lesson from History
After the stock market crash of 2001 and 2008, companies generally refrained from making big purchases for obvious reasons of cash conversation and slowdown in business. Irrespective of the size and structure, big-tech has suffered slightly, with decline in advertising revenue of Google and Facebook. Apple’s exposure to China, with closed factories and the trade war has also resulted in reduced sales. Both Apple and Microsoft have cut their short-term financial forecasts on lowered customer spending.
However, this crisis is very different from the rest due to unprecedented power and money concentrated in just 5 companies. According to Financial Times, five Big Tech companies at the end of the first quarter had $560 billion of cash or marketable securities. To put this figure into perspective, the market cap of Walmart’ on 4th June 2020 was US $349.877 billion.
These unmatched figures display how dominating these companies are. A basic lesson taught in a business school is that big corporations perish and are replaced by smaller, leaner companies since these companies break new ground and bring innovations to the table. However, we weren’t taught what to expect or even what to do if big corporations act like start-ups and innovate at lightning speed and with massive budgets.
Although, these acts of domination by the big tech have attracted attention from the US Federal Trade Commission (FTC) and Justice Department (DOJ) towards market manipulation and monopolistic ideas. Both these agencies have decided to point their guns at the big tech. FTC has made a special task force to address issues specifically for the technology industry and DOJ is already working on the investigating wide range of antitrust investigation involving Google and Facebook, and perhaps Apple in late January 2020.
During this pandemic, DOJ announced they intend to file charges against Google as early as this summer. It is yet to be seen what coronavirus brings us, but it’s certainly true that big tech will emerge stronger than ever after this pandemic with more ambitions and more innovation.
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