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Daniel Cohen joined Carmel Ventures in mid-2013 as a General Partner, with more than 11 years of VC experience. Daniel investment interests include digital media and consumer internet.
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The impact of the $13.7 billion Amazon-Whole Foods deal on the current M&A world

By June 18, 2017

Like many, I was amazed on Friday afternoon by the news that Amazon has announced the acquisition of Whole Foods. Most people were quite surprised, even though it was clear for quite some time that Amazon is flirting with the offline world (Amazon Go stores).

A lot has been written about the strategic aspect of the deal and what the deal means to the world of e-Commerce, so I will skip that and share a few of my own thoughts on what it means for the startup world, and the M&A side.

1. FAMGA (Facebook, Apple, Microsoft, Google, Amazon) are taking over the world.
A couple of weeks ago I participated in a panel organized by Lou Kerner. The focus of the panel was the impact of Facebook, Apple, Microsoft, Google and Amazon on the world, and the implications of their dominance. In the panel we talked about the ability of these companies to make bold moves and their desire to consolidate industries. The Whole Foods deal is a great example of that, and of the immense power of these companies. It’s interesting that four of these companies already acquired companies for more than $10 billion: Microsoft acquired LinkedIn ($26bn), Facebook acquired WhatsApp ($19bn), Google acquired Motorola ($12bn), and now Amazon is buying Whole Foods ($14bn). Apple hasn’t quite made it into this “club” given that their biggest acquisition to date was Beats, at “only” $3 billion. Even though this latest acquisition isn’t the biggest made by FAMGA, it does stand out, as it’s the only non-tech company that was acquired for more than $10 billion.

2. The big corporate Dev teams are busy.
As tech companies grow larger, their (always) small M&A teams are focused on deals that move the needle. With limited attention, these teams are less interested in the $20 – $50 million deals, but rather in taking big In some odd way, they prefer to spend more and buy meaningful businesses than to play the early-stage tech game. Also, once these companies make the acquisitions, they become incredibly busy with the PMI and many times lose their attention for smaller deals.

3. Vertical M&A is becoming critical.
The biggest M&A trend in the past 12 months has been the consolidation of the offline world and online world. Until now, this mostly meant offline companies buying online companies (Unilever bought Dollar Shave Club, PetSmart bought Chewy.com etc.). The point about offline-online has been quite visible, and it is a reflection of the consolidation in many value chains. In fact, as tech companies grow more dominant, they become more interesting to many players, some of whom are not your typical tech buyers. This means that startups and VCs need to network beyond the corp dev departments at Cisco and Microsoft, and have more regular conversations with offline companies that are relevant to their own activities. In other words, expect to see tech acquisitions by banks, insurance companies, retailers, travel companies and other large offline players.

That’s my 3 key takaways, purely from the M&A perspective. There are other points that I did not address at all, like the comparison of Whole Foods to WhatsApp, and most importantly, what will the future consumer experience of the Amazon/Whole Foods deal look like. We will know very soon.

 

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