There’s a serious buzz in the tech scene! With the booming interest in artificial intelligence and easier access to credit, tech companies are piling up acquisition deals like never before.
Let’s break it down: globally, the tech sector racked up a staggering $511 billion in deals just in the first two weeks of September! That’s a whopping 41% jump compared to this time last year, as reported by the London Stock Exchange Group. There’s a lineup of companies that could soon find themselves in talks with prospective buyers.
Earlier this year, we predicted that 2023 would keep bringing tech deals, and it looks like we were on point. By the mid-September mark, total global M&A (mergers and acquisitions) reached a colossal $2.83 trillion, and it’s on track to touch $4 trillion by the end of the year. If tech continues to make up the same chunk of this pie, we could see more than $200 billion in new deals before 2025 comes around.
What’s driving all of this? Well, we’ve got stable interest rates—thanks to many central banks dialing them down—which makes financing these purchases a lot more appealing. On top of that, the earnings in the tech sector are still going strong, leading many companies on the lookout for AI assets to amp up their product offerings and keep ahead in the competitive game.
For example, back in July, Palo Alto Networks finalized a deal to acquire CyberArk Software for $25 billion in cash and stock. Initially, the market wasn’t thrilled about it, but they went through with the acquisition. This move immediately boosts Palo Alto’s profitability while enhancing its suite of cybersecurity products. CyberArk benefited too, as it received a generous offer well above its market value; its stock jumped 30% post-announcement, with its market capitalization soaring to $24.99 billion.
Meanwhile, private equity firms are diving into the tech market. Many smaller AI companies that haven’t yet scaled are seeing their stocks take hits, and savvy tech-focused PE funds are viewing this drop as a chance to snag them at bargain prices. A notable example is Thoma Bravo, which agreed to acquire Dayforce for over $12 billion; this company had seen its stock plummet 18% over five years, but the news of the buyout sent DAYF soaring!
This week, analyst Dan Ives shared insights on several firms that may be prime targets for acquisitions during this buying spree, including prominent names like SentinelOne, Telos, Qualys, Tenable, Tripadvisor, and of course, Lyft.
Another name to keep an eye on is C3 AI, a software player in the AI landscape whose stock has dropped a whopping 84% over the past five years, now valued at $2.5 billion. Much of this decline occurred early on, but since 2022 some nice gains have emerged with stock prices up by 70% as their business steadily strengthens.
Ives suggests that the current market dynamics significantly increase the likelihood of C3 becoming an acquisition target within the next year, especially with its improving standing in the enterprise AI sector and a robust partner ecosystem for growth.
Whether corporate giants looking to expand their offer portfolio or private equity firms out hunting smaller targets, C3 presents a compelling option now that it’s met its financial goals and holds a lower valuation compared to others in the software space, as mentioned by Ives.
Then we have Varonis Systems, a security software compendium valued at $6.7 billion. Despite an impressive 53% uptick in stock over the past five years, it still lags behind the small-cap Russell 2000’s 61%. Shareholders might welcome an acquisition offer from a bigger player, as there’s plenty of cash flow in the realm of larger U.S. software firms, giving them the wiggle room to snap up a viable asset like Varonis.
With its use of AI to pinpoint threats to customer data efficiently, Varonis stands out as an attractive target. Don’t shy away from these options—those shares could see a significant leap with an enticing buyout offer.
If you have questions or insights, reach out to Jacob Sonenshine at jacob.sonenshine@barrons.com.
