EDITORIAL

Could The Big 5 Buy All The Unicorns In Cash?

Editor’s Morning Note: It’s Apple day, so let’s write about the iPhone 7! Kidding. Here are a bunch of numbers to keep us both happy.

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Could the Big Five tech companies buy all the unicorns? Could the Big Five buy them only with cash? And could the Big 5 buy all the unicorns with just net cash?

It’s a fun set of questions. It will help us understand the scale of the unicorn group, and also the relative cash and debt positions of the biggest companies in technology.

This will be more fun than the iPhone 7, I promise.

Unicorn Value

The Wall Street Journal has done the world a favor by compiling a dataset of all the unicorns and their values. Because I am your nerd servant, I went through the list and did a few sums. Here’s what we need (and a bit more):

  • Total unicorns, per the Journal: 156
  • Decacorns, or unicorns worth $10 billion or more: 13
  • Companies worth exactly $1.1 billion: 15
  • Aggregate value of decacorns: $306.1 billion
  • Aggregate value of unicorns yet to exit: $584.6 billion

For those of you following along at home, decacorns make up just over half of the value of the unicorn set, or less than 10 percent of unicorns comprise more than half its value. Or, one more time, more than 90 percent of unicorns generate less than half of the value of their cohort.

Now to the real players.

Big Five Wallet Check

If Uber is the king of the private kids, the real seniors are Apple, Alphabet, Microsoft, Facebook, and Amazon. We all know that those companies are gross cash-rich. Tech has done well in the current business cycle.

What you likely didn’t know was the scale of debt that the group has taken on. It’s cheaper at the moment to borrow domestically than repatriate cash from abroad to fund buyback programs and dividends. So the massive cash figures that we tend to view can be, well, a bit misleading.

Not that the companies are doing anything either unethical or even interesting by hoarding cash and using historically low interest rates to borrow in their home country. This just means we have to do a little more work to figure out where things really stand.

I went ahead and did some quick sums, using data culled from Google Finance:

Apple:

  • Cash1: $231.52 billion
  • Total Liabilities: $179.06 billion
  • Net Cash: $52.46 billion

Alphabet: 

  • Cash: $84.28 billion
  • Total Liabilities: $26.41 billion
  • Net Cash: $57.87 billion

Microsoft:

  • Cash: $123.58 billion
  • Total Liabilities: $121.69 billion
  • Net Cash: $1.83 billion

Facebook:

  • Cash: $23.39 billion
  • Total Liabilities: $2.21 billion
  • Net Cash: $21.08 billion

Amazon:

  • Cash: $16.54 billion
  • Total Liabilities: $48.54 billion
  • Net Cash: -$32 billion

Sums:

  • Cash: $479.21 billion
  • Total Liabilities: $377.92 billion
  • Net Cash: $101.29 billion

Subtraction, And Other Advanced Mathmagic

Answering our questions in reverse, the five largest American technology companies cannot afford to buy all the unicorns at their current market price using net cash. Not even close. As it turns out, debt is useful and so it is a used mechanism.

If we broaden the figures, the Big Five also could not buy all the unicorns at market-price using gross cash. They are $100 billion short. Sorry guys!

Could the Big Five buy the unicorns at market prices using their aggregate value? Probably.

Of course, unicorns are hoping for up exits, so when we compare their last private valuation to a theoretical transaction, we’re underestimating unicorn expectations. However, as a chunk of the unicorns that exist today will either die, or exit for a number smaller than their last private valuation, we are likley not too far over our skis.

But unicorn value creation has been so busy that the combined valued total of those companies is so large that even our giants would have to work to buy the smaller firms. And if unicorns keep growing, it only becomes a more difficult game to play.

Keep this in mind whenever we discuss unicorn M&A.

  1. Using our normal definition of corporate cash, this is cash and equivalents summed with short-term investments and, when appropriate, long-term investments as well.

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© Mattermark 2017. Sources: Mattermark Research, Crunchbase, AngelList.
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