Shares of HubSpot(NYSE: HUBS) were rallying on Tuesday, up 8.9% as of 3:24 p.m. ET.
Today, CNBC's David Faber reported that the recent rumors of acquisition talks between HubSpot and Google parent Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL), which have been circulating for about a month, were true.
Moreover, the potential acquisition would be an all-stock deal. That's interesting and somewhat surprising, and could result in an even bigger benefit for HubSpot shareholders.
Why Google wants HubSpot
HubSpot's core software product helps small and medium-size businesses produce, track, and analyze "inbound marketing," or when a customer uses search or clicks a social media post. In recent years, the company has also developed a full customer relationship management platform (CRM) that aims to go head-to-head with big tech giants such as Salesforce and Microsoft Dynamics 365.
So not only would the marketing analytics engine be highly synergistic with Alphabet's Search and YouTube digital advertising franchises, but the HubSpot CRM product could also make Alphabet a more formidable player in enterprise software and cloud. Currently, Google Cloud is a third-place player behind Microsoft, which can currently bundle many different aspects of the enterprise software "stack" together in a comprehensive offering. The addition of HubSpot would potentially allow Alphabet to match Microsoft's full stack to a greater degree.
Also according to Faber, the deal would be an all-stock deal. That's somewhat surprising; HubSpot's market cap was about $30 billion at the beginning of the day, and Alphabet had $108 billion in cash on its balance sheet at the end of last quarter.
It's possible that in order to consummate a deal, HubSpot insisted on receiving Alphabet stock in return, rather than cash. That would make sense, as Alphabet's stock appears undervalued and the company just initiated a dividend.
Alphabet stock is up, too
Alphabet's stock was also slightly up today. That's actually a bit surprising. Usually when a company acquires another company, especially using its own shares, the stock goes down. And that would especially seem true of this deal; Alphabet's multiple is much lower than HubSpot's, and Alphabet would be using its stock, diluting shareholders. Moreover, there is a high degree of regulatory risk, as the current administration is generally resistant to large companies getting bigger, even if the acquired business is in a different field.
That perhaps lends credence to the potential business synergies and benefits of Alphabet acquiring HubSpot. Should the deal be consummated, the enterprise software industry could see a significant shakeup.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein and/or his clients have positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet, HubSpot, Microsoft, and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
