At the heart of the disconnect between technology companies and banks is the belief among many tech executives that some advisers simply do not know what companies like Google and Facebook are looking for.
"Bankers do two things well: financial evaluation and negotiation," said Richard E. Climan, a partner at the law firm Weil, Gotshal & Manges who often works with companies to complete deals where no banks are involved. "But there's a feeling that investment bankers might not be so important on the evaluation of early-stage tech companies."
Amin Zoufonoun, Facebook's vice president for corporate development, said some bankers would come in and pitch acquisition candidates, like the user reviews site Yelp or the payment network PayPal. But instead of trying to swallow already established Internet brands, Facebook uses acquisitions to make big bets on the future and plug technical holes. And in Silicon Valley's relatively small circle of elite entrepreneurs, executives and venture capitalists, connections are easy and ample.
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Facebook's most recent big deal, the acquisition of Oculus VR, came as a surprise to even seasoned technology watchers. But Marc Andreessen, a Facebook board member, was also on the board of Oculus VR, paving the way for the deal. The move had nothing to do with improving the social network's main site or increasing sales. Instead, it was a bet that virtual reality would emerge as a new operating system of sorts.
While other companies focus on deals that will bolster their earnings per share, "we haven't done a single deal like that, where we are looking at a target with that being a rationale," Mr. Zoufonoun said.
The same dynamic was true when Google acquired Nest, the home monitoring company, for $3.2 billion this year. Nest's current sales are a drop in Google's ocean of profit, but the deal gave Google an entry to a potentially huge new market.
Big tech companies sometimes struggle to explain such unconventional deals to investors. When Facebook spent $19 billion to acquire WhatsApp, assisted only by the boutique bank Allen & Company, shareholders tried to square the enormous price with WhatsApp's small team of engineers and minuscule revenue.
"It's more art than science at times," said Sanjay Kacholiya, head of corporate development at Eventbrite, a ticketing start-up. "That can make it difficult for an investment banker who's familiar with earnings per share and discounted cash flow."
Not all unadvised deals go well. Google spent $228 million on the social games company Slide without the help of a bank, then unceremoniously shut it down. Cisco didn't work with a bank when it paid $590 million for the maker of Flip video cameras, and it wound up shuttering the unit quickly. But thanks to tech companies' enormous war chests, such mistakes rarely have long-term consequences.
While traditional investment banks might not be comfortable suggesting that clients pay such startling prices for relative unknowns, many big tech companies have built up robust corporate development departments designed to do just that. The teams are largely staffed by former bankers who have abandoned pinstripes and wingtips for T-shirts and sneakers.
Cisco, which has acquired more than 170 companies, decided it was more efficient — and more economical — to hire its own full-time bankers rather than pay millions of dollars in fees each time it struck a deal.
"Our heritage has been embracing M.&A. as a way to enter new markets," said Hilton Romanski, Cisco's head of corporate development, who started his career as a JPMorgan banker. "It makes sense to build a relatively scaled effort around M.&A. with teams and talent that understand the market."
Facebook has hired bankers away from Credit Suisse and Jefferies, among other companies, and gives them more responsibility than they would have at a bank. "They can run a deal from beginning to end," Mr. Zoufonoun said. "As an analyst, they were doing one part of a pitch deck."
At Google, Mr. Harrison has an employee looking after the deal needs of each of the company's 12 product areas, like ads, YouTube and search. That person goes to all meetings held by the senior members of that group, staying attuned to possible acquisition needs.