Why Google Shouldn't Go For Acquisitions Right Now; O'Leary Reports

The M&A activity in the tech sector is seeing phenomenal growth with major deals happenings on a daily basis and rumors of more floating around.

Kevin O'Leary of O'Leary Financial was on CNBC Tuesday to discuss the type of acquisitions happening in the tech sector and why Google Inc GOOGLGOOG shouldn't acquire a company right now.

Types Of Acquisitions

O'Leary began by explaining different types of acquisitions that are popping up lately. "I think there are two types of acquisitions [...] One is old dinosaur tech, which basically has no growth left buying other dinosaur tech companies, squeezing costs out, whacking the back office, trying to drive more cash flow."

Describing the second, O'Leary said, "The more interesting opportunities, though, are the infinite P/Es or close to of a Twitter or a LinkedIn – when you have this massive multiple you can go buy real estate with it and still trade it up."

Related Link: Why Twitter's Near-Term Stock Price Will Decide Acquisition Fate

He continued, "I mean, think about it. If you can buy something that's generating cash and your P/E is 100 times and you are buying something at 7 or 8 – that's very accretive.

"And yet, these companies haven't done it yet. It's almost like they want to stay too pure. If I were them, I would learn from the last cycle and buy a lot of stuff that generates cash now, before the market re-prices their multiples."

Google Shouldn't Acquire

O'Leary was asked whether it will be best for Google to make use of the $60 billion it has in its coffers to buy other companies. He replied, "I am going to give them the best idea they ever had – Pay me a dividend. Because, that's what really you should be doing with that cash.

"At some point, your growth slows and the way you transition yourself from a growth-oriented shareholder base to one that is more long-term, institutional in nature. Guys like me, as you start to say, we'll grow one percent dividend and we'll start to grow it over time. It's got a huge franchise globally. Why can't it give some cash back to shareholders?" O'Leary posed.