In its most recent efforts to expand the number of smart home products that it offers, Amazon.com, Inc. purchased iRobot Corp., the company behind the robotic vacuum cleaner Roomba, for approximately $1.7 billion in an all-cash deal today, August 5, 2022.
Early on Friday, iRobot’s shares increased by 19% reaching $59.56. Even before pandemic lockdowns were at their height, iRobot was trading at more than twice that amount as consumers who cared about cleanliness bought expensive vacuum cleaners.
According to Ethan Glass, an antitrust specialist at the law firm Cooley LLP, Amazon already owns the virtual assistant Alexa, the home security system Ring, and a smart thermostat, giving it a range of offerings in the “internet of things” sector.
He claimed that the American Federal Trade Commission, which is currently looking into Amazon, would likely investigate the transaction.
“I would say there is a three out of four chance of a deep investigation and a one out of four chance of a challenge,” he said. “The political appointees have made clear that they would rather go to court and lose than let a deal through that later is criticized as anti-competitive, especially as they seek to change the laws.”
Antitrust enforcers now perceive the possibility of under-enforcement as a risk rather than just over-enforcement, according to Charlotte Slaiman of Public Knowledge. The costs of inaction, she said, “The costs of inaction are much higher than antitrust experts used to think.”
In addition to sweeping up dirt, Roomba vacuums that may cost up to $1,000 collect spatial data about homes that may be valuable to companies creating smart home technology.
However, as customers began to rethink how they spend their money in the face of rising inflation, iRobot’s fortunes took a hit. Due to weak demand from merchants in North America, Europe, the Middle East, and Africa, its second-quarter revenue dropped by 30%.
The transaction occurs at a time when analysts believe cash-rich technology companies would go on an M&A spree to take advantage of depressed valuations brought on by growth challenges. Amazon presently has more than $37 billion in cash and cash equivalents.
Device sales at Amazon are a small portion of total sales, but they include smart thermostats, security devices, and the recently released Astro robot that looks like a canine.
“It seems like (CEO) Andy Jassy is going to employ M&A more than (predecessor) Jeff Bezos and it makes more sense to me now that Amazon is bigger and has more cash,” said D.A. Davidson analyst Thomas Forte.
Amazon would be expected to pay iRobot a $94 million termination fee if the deal falls through. Colin Angle would continue to lead iRobot when the purchase was finalized.
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