On Friday, Google announced it would purchase wearable technology company Fitbit for $2.1 billion. In the all-cash deal, the Big Tech giant will spend $7.35 a share to complete the transaction. Accordingly, the corporation is paying a 71 percent premium to bring the world’s third-largest fashion technology company under its umbrella.
The Information reports Google was not the only Silicon Valley giant interested in buying Fitbit. The site notes Facebook also made a play to acquire the wearables company. In September, the social network spent between $500 million and $1 billion to expand its hardware holdings by acquiring augmented reality startup CTTL-Labs. But Fitbit chose to decline Facebook’s bid because Google reportedly offered it double the money.
Why Google is Buying Fitbit
In a press release, Google explained it is acquiring Fitbit to expand its electronic ecosystem. Specifically, the corporation noted it wants to work with the wearables company’s staff to expand its hardware offerings.
In 2014, the Mountain View, California-based tech firm debuted a health-tracking platform called Google Fit. In tandem with an Internet of Things (IoT) program called Wear OS, the system provided users with a wealth of biological analytics. However, the Alphabet subsidiary didn’t introduce a smart device in tandem with its wearable operating system. Consequently, the software has not experienced widespread adoption.
By purchasing Fitbit, which has 27 million active users, Google has now established itself as a major force in the wearables market. Notably, the search engine company spent $40 million in January to acquire a portion of Fossil’s smartwatch division.
Being bought out by Google is a positive development for the 12-year-old wearables brand. In 2015, the company’s initial public offering sold for $20 a share. However, in August, the firm’s stock price hit an all-time low of $2.85. Despite selling over 100 million devices in its lifetime, the company has struggled to compete with market leader Apple.
In the fiscal fourth quarter of 2019, the iPhone maker posted $6.52 billion in “Wearables, Home, and Accessories” revenue. That represents an increase of 54 percent from FQ4 2018. With Google’s infrastructural and financial support, however, Fitbit can be a bigger player in the $18.8 billion health tracker market.
Although Google expects its latest acquisition to close in 2020, the firm may encounter some regulatory pushback. In July, The Burn-In reported the U.S. Department of Justice launched an antitrust probe into Google’s activities.
The agency took action after a consortium of retailers, including Apple, Best Buy, and Walmart, alleged the firm uses its search engine dominance to control how consumers interact with product and pricing information. Moreover, the European Union has fined Google $9.3 billion for harming consumers and rivals with its anti-competitive practices.
As such, Google’s sudden move to enter, and realistically dominate, a new industry might invite more regulatory scrutiny. Indeed, with Big Tech receiving unprecedented criticism from both major political parties, the firm’s $2.1 billion acquisition might never happen.