Mergers or acquisitions of new companies incur costs of millions or billions of dollars, which is why the chief executive of Google Inc (NASDAQ:GOOGL), Larry Page, feels that such a decision should always pass the toothbrush test. This means that before making any such decision, you should ask yourself whether it is something you could use twice a day and if it makes your life better or not? This approach leaves behind the traditional approaches of assessing the value of a company by its earnings, sales or cash flows. Instead it focuses on a long term potential rather than short term profits.

Thus, keeping in mind Google Inc (NASDAQ:GOOG)’s toothbrush test the increasing autonomy of Silicon Valley’s largest corporate acquirers has emerged in limelight. Moreover, the sidelined role of investment banks in technology deals has also been assessed.

A new trend that has emerged amongst the largest technology companies is that of self-reliance when it comes to mergers and acquisitions. Apart from Google Inc (NASDAQ:GOOGL), companies like Facebook Inc (NASDAQ:FB), have decided to rely on their own teams to identify the profitability of entering into new agreements rather than seeking help from Wall Street bankers.

Although bankers are helpful, they do not look at the core of potential deals. Over the past few years, the number of deals made without any proper advice has increased. For example, according to Dealogic Holdings (OTCMKTS:DELGF), in almost 69 percent of American technology acquisitions, valuing more than $100 million this year, the acquiring company did not seek help from an investment bank. This number has increased from 27 ten years ago. The deal between Apple Inc. (NASDAQ:AAPL) and Beats Electronics, worth $3 million, was also carried out without the help of Wall Street. Similarly, when Google Inc (NASDAQ:GOOGL) acquired the company Waze for $1 million, it did so without any professional help.

Thus, the reliance on investment banks in the technology sector, no matter how big a deal is, is decreasing. According to experts, it has become difficult to decipher what companies like Google Inc (NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL) are looking for.

A growing belief is that, although, bankers are great at financial evaluation and the process of negotiation, they lack the skill of early-stage evaluation. According to the Vice President of Facebook Inc (NASDAQ:FB), Amin Zoufonoun, tech companies have now started to focus on deals which can enable them to make big bets on the future. Thus, there are easy and ample connections in the small circle of entrepreneurs and executives of Silicon Valley.

The recent deal of Facebook Inc (NASDAQ:FB) involving the acquisition of Oculus VR highlights this new concept of focusing on future potential. This deal was not meant to improve the main site of Facebook Inc (NASDAQ:FB) or to increase sales; it was simply a bet that virtual reality would develop as a new operating system.

Where other companies are focusing on earnings per shares while making deals, tech companies have completely revolutionized their market by focusing on long term prospects.

 

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