Google’s “toothbrush test” and applying vision to M&A
Companies have a diverse set of philosophies that guide their mergers and acquisitions activity. Some seem to apply no rhyme or reason at all to the decisions they make to buy or not buy other firms. Nevertheless, when a company demonstrates as much success as Google, it stands to reason that its litmus test should be particular and a bit bold. That's why a general rule of thumb Google applies before M&A is called the "toothbrush test."
"When deciding whether Google should spend millions or even billions of dollars in acquiring a new company, its chief executive, Larry Page, asks whether the acquisition passes the toothbrush test: Is it something you will use once or twice a day, and does it make your life better?" reports David Gelles of The New York Times. "The esoteric criterion shuns traditional measures of valuing a company like earnings, discounted cash flow or even sales."
This process either rules out a plethora of companies or rules in a host of firms, depending on how you look at it. As we reported not long ago, Google recently announced a massive restructuring that will unify other brands and endeavors, separate from Google, under an umbrella corporation called Alphabet. Moving forward, it's yet to be seen whether the toothbrush test will continue to guide M&A decisions. Whether it does or doesn't, the company will doubtlessly continue to apply its unique vision to M&A.
With the guidance of an M&A advisor, your tech firm or startup can find, negotiate and sign a merger or acquisition deal that achieves your growth objectives. Contact us today to learn more about how working with an advisor can help your company reach the next level of expansion and success.