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Google to Acquire Nest

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Google recently announced that it has entered into a definitive agreement to acquire home automation startup, Nest for $3.2 billion in cash. However, Nest will continue its operations as a distinct brand even after the closure of the deal.

Nest Labs is a home automation company headquartered in Palo Alto, Calif., that designs and manufactures sensor-driven, Wi-Fi-enabled, self-learning, programmable thermostats and smoke detectors. It was co-founded by former Apple (AAPL - Free Report) engineers Tony Fadell and Matt Rogers in 2010.

This deal happens to be the second largest deal in Google’s history after the 2012 acquisition of Motorola. The Nest acquisition will provide Google an entry into the consumer appliances industry and that too at a time when consumer appliances and Internet services are getting interconnected. Additionally, the aforesaid deal is also expected to provide a boost to Google’s profitability going forward.

This deal will prove beneficial to Nest too since its business activities are based on algorithms and Google knows how to write them. Additionally, Nest’s association with Google is expected to expand its brand name.

This, however, is not Google’s first attempt to make its presence felt in the smart home market. A similar effort was initiated by Google in 2009 when it unveiled the PowerMeter service, which enabled users to monitor home electricity consumption through the web. However, Google shut it down in 2011 as it received a tepid response.

Following the announcement, platforms like Twitter (TWTR - Free Report) and Facebook (FB - Free Report) were abuzz with people expressing concerns about the privacy implications of the deal as Google collects a lot of personal data about its users' online habits. However, Nest’s executives claimed that Google takes privacy issues very seriously.

Google, the world's largest online search engine, is increasingly extending its foothold into new markets, with efforts ranging from a high-speed Internet access business to advanced research on self-driving cars and robotics.

Currently, Google has a Zacks Rank # 2 (Buy).

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