Google Buying Hubspot? Seems Far-fetched

Shares of online marketing company Hubspot spiked 5% in a day following reports that it may be in line for acquisition by Google’s parent company Alphabet. A report by Reuters quoting unnamed sources said Alphabet was talking to its advisers Morgan Stanley over making a pitch to acquire the Boston-based company whose market value is at $35 billion. 

Of course, if these rumors are true, it would be the biggest acquisition ever by Google, which has been known to make buyouts in the past in an aggressive fashion. The company, which has accumulated cash worth over $110 billion as of end-December last, is adequately stacked to make a bid for Hubspot, but there are challenges too. 

Why the deal? And why now?

For starters, it appears quite irrational to think that the Sundar Pichai-led entity would attempt such a mega deal at the precise moment when antitrust scrutinies are the norm – be it with the European Union or the Federal Trade Commission (FTC) and President Joe Biden’s administration back home. 

For starters, such a deal could cost quite a bomb, given that it would involve a significant premium over the current market value. Though Google and Hubspot have a long relationship going, the latter needs to feel motivated by the price as well as the thought of becoming part of a technology behemoth straddling the internet space. 

Hubspot, which runs a CRM solution as well as an inbound marketing and sales one, has been pushing Google ads to drive sales on its platform. That such an association could be the starting point for discussions around an acquisition seems plausible enough. However, there’s the small matter of past deal sizes that Google has gotten into. 

Google has been pretty stingy in the past

Over the years, Google (and now its parent Alphabet) have acquired companies left, right and center. However, the biggest deal till date was the $12.5 billion it spent on acquiring Motorola Mobility back in 2011. In recent times, they spent $5.4 billion for Mandiant in 2022 but in general it is conjectured that Google usually stays under $3 billion for acquisitions. 

Then there is also the issue of cost cutting that Google had initiated with CEO Sundar Pichai warning in January of more pink slips being handed out in the coming weeks and months. How would the market, and the political class react if Alphabet initiates a mega deal at a time when the company is also tightening its belts? 

That Alphabet holds huge cash reserves and can easily do the buyout is obvious, but Google would definitely want to maintain the right optics by either refraining from more job cuts or pushing the actual finalization of the prospective deal into the next year. Public antagonism would not be another cross that Alphabet wants to bear, in addition to antitrust issues.

The regulators are in a trigger-happy phase

The prevailing regulatory environment is definitely something that Alphabet would be looking at before going ahead with such a deal. Not just the US, even regulators in the UK and EU are monitoring large deals and even keeping watch on how big tech companies are attempting to circumvent antitrust laws through mass-scale hiring of top resources. Which could be one reason startups are looking to launch AI-driven hardware. 

In fact, the regulatory heat resulted in some prospective deals getting burnt. One example was Adobe’s $20 billion offer to acquire Figma, which incidentally presented much the same concerns over anti-competitive possibilities as would Alphabet’s acquisition of the CRM tool owned and operated by Hubspot. 

It is also worth noting that Hubspot itself faces competition from Salesforce and Adobe, both well-capitalized companies. While this means Google doesn’t have to worry about a lock on the market, it would still have to adjust for the risk of termination for which a fee would require to be apportioned.  

Finally, the biggest doubt that comes to mind when such a deal is discussed involves the benefits that each of the companies derive from it. By the look of things, there is hardly anything that either Hubspot or Alphabet can get beyond what they are already getting. Which is why such a deal seems tough to fathom. 

But then, stranger things have happened in the deal-making industry!