Amazon’s deal making threatened by D.C. scrutiny
Firm has committed more than $20B to acquisitions, investments since 2017
Amazon.com Inc. has been on a buying spree in recent years, but the U.S. government’s increased scrutiny of large tech companies threatens to slow that pace.
The company has struck more than $20 billion worth of acquisitions and investments since the start of 2017, more than its deal volume in all of the previous 23 years in the online retailer’s history, according to data provider Dealogic. The spree’s biggest was Amazon’s $13.7 billion purchase of Whole Foods Inc. in 2017.
Amazon’s deal-making style is to act quickly, quietly and frequently without investment bankers, according to people familiar with the company’s thinking. But the closer attention from Washington will likely result in Amazon throttling down on acquisitions, especially larger deals.
The pressure stems from increased calls for government to rein in tech giants. Congress plans a bipartisan examination of antitrust law and whether tech companies like Amazon are growing too powerful to the detriment of smaller rivals and customers. Sen. Elizabeth Warren (D., Mass.), a presidential candidate, proposes breaking up Amazon and unwinding the Whole Foods acquisition, while President Trump has criticized Amazon, suggesting the company should pay more in taxes.
The Justice Department and the Federal Trade Commission also plan to examine tech giants for possible antitrust probes. The FTC, which cleared the Whole Foods acquisition, will have oversight of Amazon.
An Amazon spokeswoman, when asked about the increased government attention, referred to recent comments made by Jeff Wilke, chief of the company’s world-wide consumer division. “We believe the most substantial entities in the economy deserve scrutiny. Our job is to build the kind of company that passes that scrutiny with flying colors,” he said last month at a company conference.
Amazon collects about 38% of all U.S. retail dollars spent online, according to eMarketer, which recently revised its estimate down from about half. But Chief Executive Jeff Bezos emphasized in his shareholder letter in April that the company remains a small player in global retail.
At the same time, he has signaled he won’t hold back on seizing opportunities to grow. At the company conference in June, he said Amazon would make bigger bets on new ventures—such as satellite internet—that “move the needle for us.”
Amazon has leaned on acquisitions to grow beyond its core online retail site. It is now a leader in cloud-computing services, the owner of a major grocery chain, a big consumer electronics maker, the country’s third-largest digital advertising company, a Hollywood studio and a threat in health care.
The company has also used deal-making to expand in foreign markets that are tough to crack. In 2017, it bought Middle Eastern online retailer Souq for around $600 million. Amazon was in discussions last year for a controlling stake in Flipkart for at least $10 billion, according to people familiar with the matter, but lost out when Walmart Inc. bought a 77% stake in India’s largest online retailer for $16 billion.
Five of Amazon’s 10 largest deals or attempted deals have come since 2017, based on Dealogic, whose data includes Amazon’s acquisitions and investments above $50 million, and on Wall Street Journal reporting. Amazon says 2017 was an outlier with Whole Foods accounting for its only multibillion-dollar deal.
Amazon sometimes watches potential targets for years before making an approach, and when it does it moves quickly to seal a deal, said some of the people familiar with the matter.
When a company buys another publicly traded firm, it is often the culmination of talks that lasted six months to a year. Amazon, by contrast, held its first exploratory phone call with Whole Foods on April 24, 2017, and announced a deal on June 16, less than two months later. Online pharmacy PillPack had been negotiating a deal with Walmart for months when Amazon swooped in and signed a $753 million deal within weeks of initial talks, people familiar with the deal said.
Amazon didn’t enlist investment bankers for the PillPack deal, which is often the case, instead relying on a formidable internal business development team and lawyers with experience at some of Wall Street’s biggest firms.
Many business mergers are pursued with an eye toward cutting costs by combining jobs and functions. But Amazon acquisitions often retain considerable autonomy, with the founders or CEOs staying on and operating from their original headquarters. The deals are designed to build out certain areas and harness new data, some of the people said.
Secrecy and exclusivity are treasured in deal talks, and especially for Amazon, these people said. Leaks not only can attract other bidders but also grab the attention of regulators—and Amazon aims to control the deal’s messaging.
Amazon told PillPack employees and investors what they could and couldn’t say once the merger was announced, according to the people familiar with the deal. For example, tweeting or blogging about the future of the company under Amazon’s ownership was forbidden, the people said.
PillPack and its investors were told multiple times that Amazon would walk away if word of the deal talks leaked, the people said. The deal was announced without any leaks.
When Amazon negotiated to buy Whole Foods, it was equally concerned about secrecy, according to people involved and public filings related to the merger. Amazon’s sensitivity to leaks is referenced three different times in the background of the merger, including Amazon’s stated intention to walk away if news of a deal spread before the announcement. The Whole Foods deal surprised the grocery industry.