What Happens When Large Tech Companies Acquire Smaller Ones?

A study on what large market cap does to innovation

Photo by pine watt on Unsplash

It has been acquisition season for the gigantic technology companies for a long period of time now. Muli-trillion dollar valuations mean everything else is at a discount — especially when the major companies on the Nasdaq-100 make up 50% of the entire index.

But what happens when a larger company acquires a smaller one? Specifically, what happens if the larger company eventually deflates?

The cash loss isn’t a cash loss. Well, not cash really because the original shares sold to the public don’t directly give the company anything. However, a larger market capitalization means that you are

1. less susceptible to takeovers.
2. can purchase smaller companies for less stock (since your market capitalization is outrageously high).

In a way, this is a hedge against future competition and a method in killing innovation that may eventually out-innovate the industry leader.

Here is what one congressperson had to say during the technology testimony on July 29, 2020:

“Facebook has used its market power to either…