Google (NASDAQ:GOOGL) kicked off the New Year by announcing plans to buy connected device maker Nest on Monday in an all-cash deal valued at $3.2 billion. If approved, the acquisition would be the second-biggest deal in Google's history.
The search giant's CEO, Larry Page, said:
Nest's founders, Tony Fadell and Matt Rogers, have built a tremendous team that we are excited to welcome into the Google family. They're already delivering amazing products you can buy right now -- thermostats that save energy and smoke/CO alarms that can help keep your family safe. We are excited to bring great experiences to more homes in more countries and fulfill their dreams!
And why shouldn't Google be excited? Scooping up Nest gives them an entrance into the much-discussed "Internet of Things," which refers to the growing network of machines, appliances, and everyday objects that are now being connected at an increasingly swift pace.
The next wave of connected tech
On the surface, $3.2 billion might seem a bit pricey for a company that currently sells just two products: smart thermostats and smoke detectors. However, a closer look reveals the true genius of this acquisition, the fact that it positions Google for success in the IoT space. In fact, Aaron Levie of Box, sums it up pretty nicely in his Twitter post below.
Google wants to own the future, and buying a company such as Nest is a leap in that direction. Since its inception in 2011, Nest has achieved tremendous success by rethinking important home products like the thermostat and smoke detector. Nest's smart thermostat, for example, connects with your Wi-Fi so you can control your home's temperature from anywhere using a laptop or smartphone.
But that's just the start of it.
Nest personalizes its features for you and your home. Using auto-away technology, the Nest thermostat can even tell when you've left the house and therefore adjust the temperature to avoid heating or cooling an empty home, according to the company.
By leveraging Nest's connected products, Google could gain valuable insight into how people live their lives. After all, Nest's home devices collect and store this information in a user's Nest account.
On top of this, Nest's connected devices could soon link with wearable tech like Google Glass -- giving users a heads-up-display of appliances inside their homes. Moreover, thanks to this acquisition, the possibilities for Google within the connected home space are seemingly endless.
Owning the future
Under the terms of the deal, Nest CEO Tony Fadell will join Google but will continue to run Nest with "its own distinct brand identity," according to a Google press release. Google hopes to close the deal within the next few months. Additionally, it's worth pointing out that Google Ventures was already invested in Nest before this acquisition.
Nevertheless, this was also prudent of Nest, as it will extend the company's reach and enable it to roll out products faster. As Fadell explained:
We're thrilled to join Google. With their support, Nest will be even better placed to build simple, thoughtful devices that make life easier at home, and that have a positive impact on the world.
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Ultimately, this is a smart move by Google, and one that should create lasting value for the company's shareholders. However, Google's stock may be too pricey for some investors today, as shares are trading well above $1,000 apiece. Luckily, there are even better high-growth stocks on the market today just waiting to be discovered. Now you can discover Motley Fool co-founder David Gardner's top 6 stock picks for ultimate growth, because he's making this premium report FREE for you today. Click here now for free access to this report.
Fool contributor Tamara Rutter has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.