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from the bankers-replaced-by-a-toothbrush dept.
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.
(Score: 2) by tomtomtom on Monday August 18 2014, @10:24PM
If anything, they're very late to the party with this. Most large conglomerates (Unilever/P&G would be the prime examples who have perhaps been doing it for longest) have been doing this for many, many years - internal M&A teams mostly hired from Investment Banks/accountancy firms doing everything except raising funds from equity/bond markets for which they compete banks down to the lowest possible fee. The difference perhaps is that Google don't need to raise money (as they can use cash and their own newly-minted shares) - so where Unilever/P&G and the like can use that business to get some free work out of the banks, Google can't.
Perhaps an interesting implication of this is that they've made a decision somewhere along the road, conscious or unconsciously that buying other companies like this is better value for their shareholders than returning that cash to their shareholders through dividends or buying back their own shares (which is what they used to do with the excess amount from their huge pile of cash).