Big companies in fast-changing,
technology-intensive businesses buy startups. After all, they have the money
and need fresh entrepreneurial talent to tap new markets and stay abreast of
disruption.
That’s
the collective wisdom about M&A in venture capital and startup
circles. It’s also how the venture business survives. Though IPOs may get more attention,
acquisitions account for the vast majority of startup exits and a majority of
venture returns.
But
what if the common wisdom isn’t true? What if companies could do perfectly well
adjusting to changing conditions, beating competitors and sustaining enormous
market capitalizations without buying scrappy startups?
To
delve into that hypothesis, we used Crunchbase data to help assemble a list of
the least acquisitive large-cap companies. The primary focus was technology
companies, but we included other sectors because leaders in retail, consumer
products, shipping and pretty much any other industry also invest heavily in
tech.
The
resultant list shows that many companies with reputations as innovators
actually don’t do much M&A. Some did in the past, but have cut back or
stopped in recent years. Others have never shown an appetite for acquisitions.
Here
are some of the most recognizable names on our list of big companies least
likely to buy your startup.
Netflix
Netflix
seems like the kind of company that would do a lot of acquiring. It has a
valuation around $60 billion, an innovative, risk-taking corporate culture and
investors who are comfortable with the company trading at a high multiple
relative to earnings. Yet, according to Crunchbase data, the Los Gatos,
Calif.-based streaming video giant has never bought a startup (at least not a
disclosed purchase).
While
Netflix doesn’t buy startups, it does have a history of spending generously on
content and licensing deals. Earlier this month, the company struck its first
licensing deal in China with the streaming platform iQIYI. It’s also entered into licensing deals
with a long list of Hollywood studios, including NBC Universal and others.
Nvidia
Shares
of the graphics chipmaker have been on a tear for the past year, and the
company’s market value recently surged past $60 billion.
Yet
the Silicon Valley company has only made one acquisition in the past six years,
after a prior pace of about a deal a year. The last time it made a disclosed
acquisition was 2015, and that was a tiny deal, paying $3.75 million to acquire
seed-funded cloud gaming startup TransGaming.
Between
2002 and 2011, Crunchbase shows Nvidia making about one acquisition a year,
including some large deals. For its last big purchase, in 2011, the company
bought Icera, a developer of
mobile broadband modem technology, for $367 million.
It’s
hard to make a case that not buying startups has been bad for Nvidia’s
competitiveness. The company posted a 50 percent revenue surge for the second
straight quarter in its last earnings report. Its net income for the past year
totaled nearly $1.7 billion.
Texas Instruments
Texas
Instruments is one of those companies that no one in Silicon Valley talks
about. Perhaps that’s because it’s based in Dallas, has been around since the
1950s and has a brand famously associated with 1970s calculators. Nonetheless,
Texas Instruments is a big player in the semiconductor space, with a valuation
around $80 billion and profit of about $8 billion a year. It’s also not very
acquisitive these days.
The
last time Texas Instruments made a disclosed acquisition, according to
Crunchbase data, was 2011, when it bought National Semiconductor for
$6.5 billion. Maybe TI is still digesting that giant purchase. Before buying
National Semiconductor, TI was reasonably acquisitive, buying about 10
companies from 2002 to 2011, including some venture-backed startups. But it
hasn’t been back to the table in a long time.
Applied Materials
Applied
Materials is another company that used to do acquisitions fairly often but
hasn’t made a new one in years. Like Texas Instruments, Applied’s last big
acquisition was enormous. The company paid $4.9 billion in 2011 for Varian Semiconductor, a
developer of semiconductor processing equipment. For a company with a market
capitalization north of $40 billion, Applied has never been particularly
acquisitive. But six years is a long dry spell.
Although
it hasn’t been buying startups, Applied Materials has been investing in them.
Its corporate VC arm, Applied Ventures, has participated in at least 46 funding
rounds since 2006, including several in the past year.
The Home Depot
We
all know Home Depot sells flooring, drills and other tools; therefore, it isn’t
expected to be snapping up quantum computing startups. But a lot of startup
innovation happens in retail, as well, so one might expect a retailer valued at
$180 billion to buy a few venture-backed companies to stay competitive.
That
hasn’t been the case. According to Crunchbase, the last time Home Depot snagged
a startup was five years ago. The hardware retail chain bought BlackLocus, an
early-stage developer of pricing software that had previously raised a couple
million dollars. The same year, it also bought Redbeacon, a site for getting price quotes and
finding professionals to work on one’s home.
Other
companies with massive valuations that aren’t much into buying startups these
days include UPS, Procter & Gamble and Citigroup. All have the financial
resources for more M&A, just not the appetite.
One
conclusion to take away from track records of these non-acquisitive companies
is that buying startups may be more a strategic preference than a necessity.
It’s obvious many large-cap tech companies — Google, Microsoft, Oracle and
Facebook, to name a few — have a history of both acquiring a lot of startups
and sustaining massive valuations. But clearly, that’s not the only way to stay
on top.
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