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May 18, 2020

Fantasy M&A

The coronavirus crisis may kick-off wild corporate development activity. Here's who Apple, Amazon, Facebook, and others should buy.

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In the middle of the Great Depression, Forrest Mars made a decision: he was going to buy a dog food company. For the creator of the Milky Way bar, and the catalyst behind one of America's largest candy-makers, Mars Inc., it wasn't the most natural of acquisitions.

"He was always prepared to consider outlandish ideas," a colleague later noted of Forrest. For many, purchasing Chappel Brothers, a small UK-based purveyor of pet food — itself a category that had only just emerged — was precisely that. But Forrest's mind was made up, and in 1934, he brought "Chappie" into a Mars family boasting Snickers, Mars, and Three Musketeer bars.

It was a stroke of genius. With virtually no competition, Chappie became a best-seller in Europe, dominating the region, and setting the groundwork for Mars's pet-focused empire. Over the years that followed, the company would go on to launch Pedigree and 38 other pet brands, in addition to purchasing a large chain of veterinary clinics. Today, the company synonymous with M&Ms and other sweets earns the majority of its revenue serving animals.

The current recession may present similarly transformative M&A opportunities for tech's titans. While orthodoxy suggests that buying activity declines in a downturn, the rules may not apply for Google, Amazon, and others like them. For one thing, global catastrophe excepted (a large caveat), circumstances are favorable for buyers. Corporate balance sheets are fatter than they've been in decades, and interest rates are low, making it easier to borrow the money to make a deal happen. A study by Gartner indicated that 71 companies have at least $5B on hand, excluding those with high debt. Of those 71 businesses, 57 touch IT and internet services, collectively controlling $1.1T in dry powder.​

There are also clear benefits to buying during a recession. A study by Bain indicated that acquisitions completed during and immediately after a recession produced nearly 3x in excess returns compared to those bought in boom times. That may be part of the reason that Microsoft, Amazon, and Oracle all completed more acquisitions during the Great Recession than either before or afterward.

All in all, one industry commentator may have put it best: "this is going to be a perfect time to just be a buyer."

With that in mind, here are some moves that could make sense for some of America's largest tech firms. As a disclaimer, I have no inside knowledge of any companies discussed.


While AMC's stock surged 30% after rumors surfaced that Team Bezos had discussed a buyout, there are several more interesting places Amazon could invest, particularly in healthcare, staffing, and education.

  • Healthcare. The acquisition of PillPack in 2018 gave Amazon a play in the space — now could be the time to add at-home diagnostic testing to the equation. Companies like EverlyWell and LetsGetChecked could set the stage for coronavirus testing in 2021, and serve as another puzzle piece in the company's mission to be "the new Red Cross."
  • Staffing. If Amazon is successful in building out a covid-free supply-chain, offering in-home services may be a natural next step. If you could be certain that a plumber booked through Amazon was virus-free, why book anywhere else? Thumbtack has recently laid off nearly 1/3 of employees and would offer immediate supply as demand for home-services begins to re-emerge. In the digital realm, layoffs may push many into freelancing. Fiverr — a former employer of mine via an acquisition — often claimed to be building the "Amazon of services." A 17% increase in Fiverr buyers may attract attention.
  • Education. As students balk at the cost of a higher education experience provisioned digitally, many may turn to lower-cost options. With a partnership between AWS and Udacity already in place, Amazon could capitalize by bringing the company in-house, expanding the e-learning platform's "nanodegree" offerings. In the process, Amazon would secure a pipeline of technical talent, deepen consumer trust, and begin the process of disrupting education, one of the few markets large enough to be worthwhile. Prising Flatiron from WeWork's withering grip, or winning over Lambda School are plausible alternatives, though their focus on live classes would add a layer of complexity.


While Uber and Amazon dominated headlines this week, the accountants at Cupertino have been plenty busy: DarkSky, Voysis, and NextVR have all joined in recent months. With iPhone sales projected to drop 36% next quarter, Apple may look to expand services revenue and add hardware products that relate to health — consumers' highest priority — or enhance the home.

  • Digital health. Apple is reportedly spinning up a workout app internally called "Project Seymour." Those aims could be bolstered by adding a catalog of classes, and bringing key talent on board. Aaptiv might be a good place to start (something of a snag given the company took funding from both Disney and Amazon), while breakout stars like Megan Roup and her company, Sculpt Society, could give the new service a face. If Tim Cook is set on building a physical health app from scratch, then perhaps Calm and its guided meditation might represent a canny parallel purchase. The mental health business was valued at $1B just over a year ago.
  • Entertainment. If Netflix and Disney+ are in an all-out streaming slugfest, Apple is the sidelined friend just begging for a piece of the action. Even Starz has more subscribers than Apple TV+. Now might be time to take one of those two off the table. Acquisitionsfor both have been mooted in the past, with Netflix the more logical choice, given the baggage (think: theme parks, resorts) that comes with The Mouse House. With little opportunity to make new original content over the next year or so, a purchase may be Apple's only way to go on the offensive.
  • Connected hardware. Peloton would kill two birds with one stone, expanding services revenue, and deepening Apple's connection to health. So too, Mirror or Tonal. Oura, a much-beloved sleep-tracking ring, would be another option, though it wouldn't add services revenue and might conflict with Apple Watch's own slumber-metrics. Finally, Sonos could represent a value-pick at under $1B. The stock has been in freefall over the last 3 months, dropping from $14 to just above $9. Once the dust settles, consumers may look at the speaker manufacturer as a way to make staying-in more fun.


With Giphy tucked in safely at 1 Hacker Way, and investment in Jio wrapped up, Facebook has already been busy. While Zuckerberg is unlikely to bring Zoom into the fold, he may still have targets in mind. He could do worse than turning his attention to creator tools and gaming.

  • Creator tools. As artists struggle to earn revenue IRL, many are turning to platforms like Patreon. Over 70K have joined since mid-March. A Patreon purchase would give influencers more ways to monetize and manage fan relationships, without needing to leave Instagram. Patrons, meanwhile, would have more reason to spend time on platform should they be given the option to access gated content in-app. The business was last valued at $450MM.\.
  • Games. Oculus was supposed to usher in a new era of socializing, with "Facebook Spaces" the metaverse in which we were expected to live. The coronavirus has laid bare just how far behind Big Blue is when it comes to the next generation of fraternization — social gaming, not VR, is the new frontier. To catch up, Facebook could snap-up Epic, owner of Fortnite, adding Roblox to their tab to capture a younger demographic. Both are fundamentally social games, built for interaction. Assuming a 100% mark-up from Epic's last round, and a generous 50% premium on Roblox's more recent funding, the deal might cost in the region of $36B. Facebook's value rose ~$89B over the last month.

Other possibilities

  • Uber buys Convoy. With the potential acquisition of Grubhub, we are seeing Uber remake itself before our eyes. Rather than ferrying people, the company's future may be as a deliverer of things. With trucking brokerages forced to make cutbacks, now might be an opportune moment to take share. Micro-fulfillment solutions like Flexe could also be worth investigating.
  • Google buys Lyft. Uber may have the latitude to pivot; Lyft doesn't. With well-established ties between the companies, Pichai could swoop, locking up Waymo's distribution strategy for the future.
  • Microsoft buys UiPath. The RPA provider would bring 400K customers to Microsoft, and fortify existing products like the low-code Power Platform. At an expected $7B valuation, Seattle's OG giant could buy into the "fastest growing space in enterprise software" without reaching for a Pepcid. Automation Anywhere, a UiPath competitor, could be another option.
  • Dropbox buys Figma. Despite the company's 2017 redesign, aptly described as a "fantastic midlife crisis," Dropbox has failed in its attempts to move beyond file-sharing and into collaboration. Design software, Figma (valued at $2B) would correct that perception, giving the company a jewel to showcase that fits the platform's core competencies. Though more of a conflict with existing product Dropbox Paper, Notion would solve a similar problem.
  • Slack buys Front. With $862.5MM in fresh cash via convertible note, Slack is in a strong position to buy. Front, a shared inbox product, might be an interesting target, giving Slack a pathway to managing external communications. The French company raised $59MM at an undisclosed valuation. Meanwhile, picking up Asana, valued at $1.5B, would give Slack a bundled communication and collaboration suite, allowing them to compete more directly with Microsoft Teams' more comprehensive platform.
  • Netflix buys Caffeine. With a fresh $1B in debt, Reid Hastings also has the cheddar to make some plays. Twitch-competitor Caffeine could give Netflix an interesting property in live streaming and provide an avenue to expand beyond recorded video. Caffeine has raised $146MM from a16z, Greylock, and is valued at $500MM.

With a single acquisition, right in the heart of a depression, Forrest Mars set his family's business on an entirely different trajectory. There was no reason to believe the company known for the Mars-O-Bar, would come to be dominated by dog food a century later. In the years to come, we may return to this period and find similar tales of metamorphosis. For Big Tech, there may be few better opportunities for reinvention and expansion.