Google to acquire Fitbit for $2.1 billion

The rumors were true — Google is acquiring fitness wearables company Fitbit in a deal worth $2.1 billion, a 30% premium on Fitbit’s current market cap.

Fitbit’s shares have tumbled since its 2015 IPO, going from a high of nearly $50 to a low of less than $3 this year. In the wake of reports this week that Alphabet was preparing a bid, Fitbit’s shares surged more than 40% to over $6. Google will pay $7.35 per share in an all-cash transaction that is expected to close in 2020, pending both shareholder and regulatory approval.

With Fitbit under its wing, Google said it plans to build wearables that combine “the best hardware, software, and AI.”

“Fitbit has been a true pioneer in the industry and has created terrific products, experiences, and a vibrant community of users,” said Rick Osterloh, senior VP for devices and services at Google. “We’re looking forward to working with the incredible talent at Fitbit and bringing together the best hardware, software, and AI to build wearables to help even more people around the world.”

The story so far

Fitbit was originally known for its fitness-tracking bands, but in 2017 it expanded into smartwatches to keep apace with newer entrants in the wearables space, including Apple. Combined with the growing number of competitors in the fitness tracking space, such as China’s Huawei and Xiaomi, which have brought more affordable trackers to market, Fitbit has for some time been fighting a tough battle in a crowded field. Indeed, earlier this year Fitbit cut its 2019 revenue forecast, blaming disappointing sales of its new (and cheapest) smartwatch, the Versa Lite.

While Google began life as a software maker, it has since expanded into all manner of hardware devices, including laptops and smartphones, but it has yet to bring a smartwatch to market. However, Google has reportedly been working behind the scenes to develop a smartwatch, and it’s also worth noting that Google already offers Wear OS, an operating system for wearable devices.

So in many regards, the Fitbit acquisition should not come as a major surprise, given that wearables were an obvious omission in Google’s product lineup. And despite Fitbit’s recent turmoils, it remains a major recognizable brand in the wearables space, with some 28 million active users around the world — something Google is eager to capitalize on.

From Fitbit’s perspective, growing in the current competitive wearables landscape would have been a challenge, especially with shareholders to appease — so becoming a private entity that operates within the Google ecosystem could give it fertile ground.

“Google is an ideal partner to advance our mission,” added Fitbit CEO and cofounder James Park. “With Google’s resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and make health even more accessible to everyone.”

Data grab?

While there’s nothing specific to suggest regulators will attempt to block this acquisition, U.K. Labour politician Tom Watson, the shadow digital, culture, media, and sport secretary, called the planned deal “a data grab.” Watson wrote to the U.K. competition regulator on Tuesday after reports first surfaced that Google planned to make a bid for Fitbit, asking it to intervene until a broader investigation into anticompetitive practices in the technology industry had been completed.

“I have long been concerned about the data monopolies that dominate our tech market, including Google,” Watson noted. “These companies hold and gather an unprecedented amount of data on users, which is then monetized through micro-targeting and advertising to amass huge profits and power. Meanwhile, the digital giants themselves remain unaccountable, unregulated, and see themselves as above the law. They have run rings around regulation for far too long.”

The ability to monetize fitness data is obviously a major draw for Google, and it will be interesting to see whether this deal attracts the attention of any regulators in its home market. Google is more than aware of how this deal could be perceived and is already outlining some of the ways it plans to manage the newly acquired data — including not using it to sell ads.

“When you use our products, you’re trusting Google with your information,” Osterloh said in a separate blog post. “We understand this is a big responsibility and we work hard to protect your information, put you in control, and give you transparency about your data. Similar to our other products, with wearables we will be transparent about the data we collect and why. We will never sell personal information to anyone. Fitbit health and wellness data will not be used for Google ads. And we will give Fitbit users the choice to review, move, or delete their data.”

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