Google Inc on Monday announced plans to acquire Nest Labs Inc, a maker of smart thermostats and smoke alarms, for $3.2 billion, signaling the Internet company's intention to expand into a broader array of devices and bringing valuable hardware design expertise in-house.
Nest, which was co-founded by one of the creators of Apple Inc's iconic iPod music player, will continue to operate as its own distinct brand after the all-cash deal closes, Google said.
The deal is the second-largest in Google's history, after the $12.5 billion acquisition of mobile phone maker Motorola.
"Nest Labs appears to be focused on thermostats and smoke alarms, but it's not far-fetched to see Google expanding this technology into other devices over time," said Shyam Patil, an analyst at Wedbush.
"Home automation is one of the bigger opportunities when you talk about the Internet of everything and connecting everything. This acquisition furthers their strategy around that," he said.
Shares of Google were up 0.5 percent at $1,128.49 in extended trading on Monday.
Nest will continue to operate under the leadership of Chief Executive Officer Tony Fadell - a former Apple executive who is referred to as the "godfather" of the iPod - with its own distinct brand identity, Google said
Nest, which counts Kleiner Perkins, Lightspeed Venture Partners, Google Ventures and Shasta Ventures among its investors, employs a large number of designers and engineers from Silicon Valley firms like Apple and Google.
It gained a large following with its first thermostat - a round, brushed-metal device with a convex glass screen that displays temperature and changes hue to match the color of the wall it attaches to. It also tracks usage and employs that data to automatically set heating and cooling temperatures.
The Palo Alto, California-based, company employed about 280 people as of October.
Google CEO Larry Page praised Nest's current products and its founders' talents in a statement and said that Google was "excited to bring great experiences to more homes in more countries and fulfill their dreams."
Google said the deal is expected to close in the next few months pending regulatory approval.