Amazon has recently been buying companies in large transactions. The company wants to grow beyond e-commerce and cloud computing, and to achieve this it moves quickly when it thinks it will make a clear profit from acquiring another company.

One example: in 2015, Amazon acquired the Israeli chip manufacturer Annapurna Labs for 359 million euros. This allows it to build its own chips for the data centres run by Amazon Web Services and thus reduce their cost.

Amazon’s biggest acquisitions in the las two years

For most of its 28-year history, Jeff Bezos’ company has prioritised organic growth. However, this changed in 2017 with the purchase of Whole Foods for approximately 14 billion euros, the largest deal in the company’s history so far.

From that moment on, Amazon changed its strategy, and in the last five years it has closed 7 of its 10 most expensive deals. In fact, in the last year and a half alone, the company has made its three biggest purchases after Whole Foods: the media company MGM for 8.5 billion dollars, the private clinic chain One Medical for 3.9 billion dollars and iRobot, the company that created the famous hoover Roomba, for 1.7 billion dollars.

The objective of this acquisition strategy is to maintain Amazon’s scalability. M&A deals are a way to maintain the company’s historical annual growth of over 20%.

Amazon’s three principles for company acquisitions

Acting swiftly

Amazon far outpaces its competitors in terms of speed. For a purchase worth millions of dollars, its simplified organisational chart requires the approval of just two executives. Meanwhile, companies like Google or Samsung involve more than five executives.

Even in the case of large acquisitions, such as the recent acquisitions of iRobot and One Medical, Amazon is able to close them in a single month. Once negotiations have started, moving quickly is essential for Amazon. The reason is that the longer they last, the more likely it is that a leak will drive up the price.

However, this does not mean that the company acts unthinkingly. Before submitting an offer, Amazon takes its time to study the market carefully and decide what it wants to buy.

Seizing the moment: the iRobot example

Amazon’s M&A team never enters into price wars. It keeps price expectations low from the beginning of the deal and always looks for undervalued assets.

For example, Amazon first approached iRobot in 2016 with an offer that the home automation manufacturer rejected as low. Amazon bid its time and came back last May, when iRobot announced that it had missed quarterly expectations and cut its forecasts. As a result, its shares plunged 23%. This decline came on top of a 50% drop since February 2021 due to supply chain problems.

Amazon took advantage of the circumstances and its financial muscle to offer iRobot a quick buyout for $61 per share, a price virtually identical to what it had offered six years ago.

Preferably buy in cash

Whenever possible, Amazon prioritises cash rather than shares. The company headed by Jeff Bezos foresees that its shares still have great growth potential. And this despite the fact that they have already almost tripled in price over the last five years.

The last substantial equity deal was that of online shoe retailer Zappos in 2009, worth around $1.2 billion.



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