SoylentNews

Mergers Must Meet the Toothbrush Test in Silicon Valley

posted by janrinok on Monday August 18 2014, @05:33PM   
from the bankers-replaced-by-a-toothbrush dept.

AnonTechie writes:

When deciding whether Google should spend millions or even billions of dollars in acquiring a new company, its chief executive, Larry Page, asks whether the acquisition passes the toothbrush test: Is it something you will use once or twice a day, and does it make your life better?

The esoteric criterion shuns traditional measures of valuing a company like earnings, discounted cash flow or even sales. Instead, Mr. Page is looking for usefulness above profitability, and long-term potential over near-term financial gain.

Google’s toothbrush test highlights the increasing autonomy of Silicon Valley’s biggest corporate acquirers — and the marginalized role that investment banks are playing in the latest boom in technology deals.

Many of the biggest technology companies are now going it alone when striking large mergers and acquisitions. Companies like Google, Facebook and Cisco Systems are leaning on their internal corporate development teams to identify targets, conduct due diligence and negotiate terms instead of relying on Wall Street bankers.

• Re:Wish we could track purchased companies (Score: 2) by cafebabe on Monday August 18 2014, @08:29PM

  by cafebabe (894) on Monday August 18 2014, @08:29PM (#82730) Journal

  I wish there was some way we could do a longitudinal track of technologies purchased by big companies.

  Perhaps a bunch of people should check what happened to acquisitions mentioned in CrunchBase [crunchbase.com].

  All I know is that I used to work for a small company that developed a technology that a big company bought for a fairly bloated amount, and as far as I know the big company never did anything with it at all. Maybe it was used internally to revolutionize the company's productivity (the big company limped along until it was bought by another big company; you'd know the names of both quite well), but the public never saw it.

  Did you work for MySQL? Sun Microsystems purchased it for US$1 billion, didn't do anything obvious with it, then got purchased by Oracle for US$4.7 billion. The second acquisition showed that the first was fairly bloated because it valued SPARC, Solaris, Java, NFS, development projects, patents and everything else being less than four times the value of a freemium database company with no patents.

  --
  1702845791×2

  Parent

  Starting Score:	1		point
  Karma-Bonus Modifier		+1
  Total Score:		2