When your cash rich, you're hungry for deals. And Microsoft has +$136 billion in cash. The company brings in +$60 billion in cash flow every year. Like Warren Buffett, Satya has a serious cash problem. Microsoft needs to invest funds or provide a dividend.
The current strategy is to enter consumer software in a BIG way. TikTok is the most popular social app with millennials today. I started using the app last year and found it to be twice as engaging as Instagram. An interactive feed with strong video editing features has resulted in explosive growth. Microsoft has a strong acquisition thesis with this target in mind.
But with every good idea comes a list of problems. TikTok is owned by a Chinese social platform which may be a security threat for users. China is a direct competitor to the U.S. and we need to have a strong offensive position in global trade. This includes physical or digital. But it wont be easy for Microsoft to complete this deal.
TikTok will be valued around $30-60 billion, depending on the investment structure. Microsoft has committed to take over 15 million lines of code and secure consumer data. Users are concerned about data but the main focus is control. Google, Microsoft and Facebook are in a better position to secure my data than you or I. The U.S. Government has given Microsoft until September 15th to complete due diligence otherwise TikTok will be banned from the U.S.
Let's see what the future of TikTok has in store for our social celebrities. The D'Amelio sisters, pictured above, have over 100 million followers today and partnered with major cosmetic brands. Hopefully some of these influencers can transfer their stardom to other social networks like YouTube.
Google invested $450 million in ADT, everyone's favorite home security system. I'm a big user of Google Home and Smart lights but haven't moved on to other smart devices yet. Now Google's Nest devices will become the cornerstone of ADT's smart home offering.
This is a big deal.
Hardware is the least sexy part of technology. The Nest is a smart, boring thermostat. But is a critical piece in every single home in America and the world. An integrated security partner will mean fewer false alarms and more useful notifications. This small investment also sets up Google to acquire ADT. In the past, Samsung powered ADT's home security system but I think the Google deal will outrank that.
From an investment perspective, security systems are an ideal cash flow business. Consumers and enterprises need them for protection and security systems are multi-year contracts that are hard wired in your home. Google will have direct access to the most mission critical parts of the economy. I don't think this will be the last hardware deal we see from Google.
This week I moderated a virtual event to discuss different acquisition strategies in business. The event was hosted by the Punjabi Chamber of Commerce. Our panelists had an extensive background investing and building businesses.
The panelists discussed the challenges of rolling up businesses, how to raise capital, and the operational problems from acquiring companies.
Kamalpreet Virdi is the CEO of Aequor Technologies, a healthcare staffing, which has rolled up ten businesses across America. Today it is one of the twenty largest healthcare staffing companies in America.
Jay Bhatti is a successful internet entrepreneur who sold his search engine to Intelius and then ran acquisitions. Today he's a venture capitalist at BrandProject LP and involved with building major DTC e-commerce brands.
Kamal, CEO of Aequor, discussed the challenges of building a business organically and how to source new deals. Ike Suri, CEO of FundingShield, talked about how to build a team and what to look for in due diligence. Jay, Co-founder of BrandProject, covered the DTC e-commerce industry and the different investing structures.
You can watch the event video below: