The possibility of an Alphabet acquisition appears to be gone.
Digital marketing software company stocks HubSpot (Hub -2.79%) As of 12:30 p.m. EDT on Friday, it was down 19.1% for the week, according to data from S&P Global Market Intelligence.
HubSpot fell this week despite the broader market strength. However, in this case, HubSpot’s weekly decline has nothing to do with fundamentals, but rather rumors of an acquisition of the company that now appear to have not come to fruition. But is this decline a buying opportunity?
Report: Alphabet pulls out
In April, Reuters reported that HubSpot and Google’s parent company alphabet (Google -0.28%) (Google -0.27%) Talks about an acquisition were underway. At the time, it was expected that deep-pocketed Google would pay a significant premium, so HubSpot’s stock price naturally soared on the news. Then, in late May, CNBC also confirmed that talks between Alphabet and HubSpot were still ongoing.
However, the deal now appears to have fallen through, according to a Bloomberg report on Wednesday, which said the deal never even made it to the stage of substantial due diligence.
Such a deal would make sense: HubSpot’s digital marketing software would be a great fit for the many YouTube personalities and other small business owners who use Google Search and other Google digital advertising properties. But there would have been big obstacles. For one, the deal would be Alphabet’s biggest ever, putting pressure on management to ensure its success. Related to that, the proposed deal would likely provoke significant challenges from federal regulators. Notably, Alphabet has already filed two lawsuits against the Department of Justice, and the Federal Trade Commission (FTC) under the current administration generally opposes large mergers.
Therefore, HubSpot’s week-over-week share price decline is likely due to the loss of any acquisition premium that may have been built into the stock price.
Should HubSpot investors be worried?
The cancellation of the acquisition appears to have nothing to do with HubSpot’s fundamentals, but rather with the likelihood of the acquisition being successful, so HubSpot investors should be encouraged on that front.
But the post-cancellation sell-off has divided analysts, with some believing the dip provides an attractive entry point and others questioning whether HubSpot’s growth is enough to justify a valuation of 11 times sales. For those who were bullish or bearish on HubSpot prior to this week, the events of this week shouldn’t change your mind either way.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Billy Duberstein and/or its clients hold shares in Alphabet. The Motley Fool holds shares in and recommends Alphabet and HubSpot. The Motley Fool has a disclosure policy.
