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Data Shows Big Tech’s ‘Build vs. Buy’ Debate Favors ‘Buy’

One decade.  And 616 acquisitions and hundreds of billions of dollars spent.

Big Tech has been busy, to say the least, buying up smaller rivals.  But the question has been whether the buying spree has stymied competition — or perhaps, to the contrary, nurtured it.

In a study released last week by the Federal Trade Commission, tech deal-making was tied to 616 transactions stretching back to 2010 and continuing into 2019. Of the 616 transactions, per the FTC data, 65 percent were between $1 million and $25 million.

Transactions below a $92 million threshold do not have to be reported to the commission.

As for the deal makers, specifically the acquirers, you might recognize the names: Alphabet Inc., Inc., Apple Inc., Facebook Inc. and Microsoft Corp. These companies, most of them anyway, are being examined by regulators and lawmakers (in some cases by the FTC itself) over their deals. In the commentary about the study, the commission said that a significant percentage of acquisitions — more than 39 percent — were for companies that were less than five years old at the time of the deal. In addition, about half of the transactions where the target firm’s staff went to work for the acquirer (more than two-thirds of acquisitions) were for companies with fewer than 10 employees. Roughly 76 percent of the deals included non-compete agreements.

Drilling down into the data, we find that, as described by the FTC, the categories that saw the highest deal tallies included mobility and application software — though the contributions varied year to year.

The last couple of years showed the highest transaction rates, at more than 60 in each of the last several annual tallies stretching back to 2013, with the highest at 79 in 2014.

And in additional findings published by the Financial Times — and in a net that seems to be cast far wider than the FTC study — tech companies, in general, have completed more than 9,200 transactions since the start of this year alone ($264 billion worth), which is 40% above the transaction pace set in the heady days of the dot com boom more than 20 years ago.  And in an overlap with the FTC, the Financial Times reported that 8,455 transactions were below that FTC $92 million reporting threshold, accounting for $66 billion in deals.

Now: Triangulating some of the data lead to some conclusions. It’s fair to say that the acquisitive pace, quickened as it has, comes as the Big Tech behemoths have been flush with cash. Buying these smaller (and, arguably, smallest) firms in their nascent stages gives the tech platforms both technology and staff that can be developed in-house, so to speak. The non-competes that were/are in place for a significant percentage of the deals hints at the strategic value these companies might harbor.

As to where the FTC comes down on that activity — and whether it’s anti-competitive (as opposed to opportunistic?) remains to be seen. But beyond the gaze of regulators comes the data that shows that the “build vs. buy” debate — at least when it comes to developing new tech and services — seems, actively, to have settled down on the side of “buy.”

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