Yes, tech firms incinerate capital on these deals (generally, Google particularly). It is confusing cause and effect: these firms are large (with little to no s

Yes, tech firms incinerate capital on these deals (generally, Google particularly). It is confusing cause and effect: these firms are large (with little to no shareholder oversight), and so can spend large amounts of money on useless acquisitions. The effect on innovation is the opposite: ppl start up companies knowing they will get bought (I wouldn't call this innovation but others would). And your point about dividend stocks is wrong. Dividend stocks are usually cash-generative businesses that have high ROI but are capital constrained. For various behavioural reasons, people underpay for these stocks...although you have to factor in that dividend stocks will generate taxable income, so the returns tend to be overstated. Either way, it is neither here nor there...the question is about what you pay and what you get. You pay a certain price for marginal ROIC, the question is whether the price you are paying allows a decent return (generally speaking, I don't like dividend stocks, they are slow-growth, I will have to pay tons of taxes, and I will have to work out how to recycle the capital...I would much rather own a stock that can retain my capital and invest it for me at a high rate). Btw, the reason why M&A happens and destroys capital is because it is a very easy route to growth, investors aren't sophisticated about value-destroying deals (if they result in growth in EPS), and comp is usually based on growth. It is a pretty toxic combination (you can't push on a string, most businesses can't grow fast, paying execs doesn't change that so the execs walk away with a big sack of your money and you end up with nothing).