Third Time’s a Charm With Alphabet’s Latest Acquisition


Alphabet’s (NASDAQ:GOOG, GOOGL) Google Cloud unit announced on March 8 that it was buying Mandiant (NASDAQ:MNDT) for $5.4 billion. The acquisition of the Virginia-based cybersecurity firm ought to be good for Google Cloud’s customers and, ultimately, GOOG stock. 

a Google Pixel smartphone
Source: Tero Vesalainen /

However, Alphabet’s history of acquisitions isn’t the best, so its shareholders better hope that third time’s a charm when it comes to its latest purchase. 

Here’s why. 

GOOG Stock and Past Acquisitions

The purchase of Mandiant for $5.4 billion makes it the second-largest acquisition in Alphabet’s history. That’s behind the $12.5 billion for Motorola Mobility in 2012, and ahead of the company’s Nest purchase for $3.2 billion in 2014. 

Unfortunately, for Alphabet shareholders, it ended up selling Motorola Mobility for 75% less than it paid only two years later. That’s not a return on investment you want to see very often. 

As for Nest, it’s safe to say that the purchase hasn’t exactly lit the company on fire. Nest Labs was on CNBC’s original list of 50 disruptors in 2013. Google bought it a year later. 

Nest was founded in 2010 by Tony Fadell and fellow Apple (NASDAQ:AAPL) colleague Matt Rogers. When it made the list, Nest had saved an estimated 750 million kilowatt hours of electricity. I couldn’t begin to guess what that number’s risen to today.

Has Nest met management’s expectations?

In 2015, Nest is said to have generated annual sales of $340 million, according to Recode. While that’s no slouch for a company that was only five years old at that point, Alphabet paid more than 10x sales to buy Nest. 

In 2020, Google paid $450 million for a 7% stake in ADT (NYSE:ADT). In return for its investment, ADT agreed to use Nest’s internet-connected cameras and the Nest Home Hub with its security systems. 

Google’s ADT stake today is worth $391 million, down almost $60 million after 18 months. As for Nest, Google doesn’t break out its revenues. It’s part of Google’s other revenues.

My guess is that the ADT arrangement has helped accelerate Nest’s sales since August 2020, but not to the point it’s got its money back on the acquisition. 

What Does Mandiant Bring to the Table?

As Google’s press release states, the acquisition of Mandiant will complement Google Cloud’s existing cybersecurity services. 

“With the addition of Mandiant, Google Cloud will enhance these offerings to deliver an end-to-end security operations suite with even greater capabilities to support customers across their cloud and on-premise environments,” its press release stated. “As a recognized leader in strategic security advisory and incident response services, Mandiant brings real-time and in-depth threat intelligence gained on the frontlines of cybersecurity with the largest organizations in the world.”

Google Cloud just got that much stronger for just $2.2 billion more than it paid for Nest. And it kept Mandiant out of the hands of Microsoft (NASDAQ:MSFT), who was rumored to be kicking its tires in February.

“With cyber attacks increasing by the day and cyber warfare underway from Russia/state sponsored cyber terrorism organizations, Google is doubling down on its cyber security footprint at the right time with Mandiant and looking to differentiate itself from the likes of behemoths Microsoft and Amazon in the cloud arms race,” Barron’s reported Wedbush Securities analyst Dan Ives wrote in a note to clients. 

I don’t think there’s any question Mandiant adds value to Google Cloud. How much value is yet to be determined. 

For a company of Alphabet’s size, it doesn’t make a lot of large acquisitions. Since 2001, of the 246 acquisitions made, only seven have been for more than $1 billion. 

Mandiant CEO Kevin Mandia had this to say about joining Google Cloud:

“There has never been a more critical time in cybersecurity. Since our founding in 2004, Mandiant’s mission has been to combat cyber attacks and protect our customers from the latest threats,” Mandia said in the press release. “To that end, we are thrilled to be joining forces with Google Cloud. Together, we will deliver expertise and intelligence at scale, changing the security industry.”

With Google’s deep pockets and Mandiant’s expertise, something tells me its second-largest acquisition will be one of its better buys in recent years.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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