Technology stocks including ACI Worldwide Inc. appear to be the most likely takeover candidates in 2021 as the outlook for merger and acquisition activity brightens with companies seeking growth opportunities.
Companies in tech and tech services made up nearly a quarter of M&A watchlists in a Bloomberg survey of a dozen event-driven traders, analysts, strategists, bankers and fund managers.
Technology M&A could support a rebound underway in deal activity after global transactions fell to a near decade low last year amid the pandemic. That corner of the industry is poised to see more tie-ups as competition to innovate heats up and shareholders’ demand for returns grow louder. A $1.9 trillion spending bill proposed by Joe Biden may help spur economic activity, vital to the overall deals landscape. However, concerns on corporate tax rates, antitrust scrutiny, and relations with China remain.
“M&A activity typically tracks periods of strong economic growth, sustained market rebounds, and most importantly CEO confidence, which is coming back,” Darlene Pasquill, head of Americas equity division at Mizuho, said “In tech, software is a favored asset by both sponsors and corporates given the strong fundamentals coupled with the desire to strengthen capabilities in security, human capital management, and marketing outreach.”
Payments company ACI Worldwide Inc. landed on watchlists after activist investor Starboard Value LP, wielding its 9% stake, urged the company to sell itself amid industry consolidation. The main issue highlighted in a letter sent to the company’s board in early December was growth.
Starboard’s letter took issue with implied sales growth from recent management guidance. It read: “If this new guidance is really the best that you can do over the next three years, then we believe that a sale of the Company is clearly a more attractive option for shareholders.”
Global Payments Inc. also showed up as a takeout candidate after talks for a merger deal between it and Fidelity National Information Services Inc. fell apart recently. The deal could have been valued at around $70 billion, according to the Wall Street Journal. Payments firms deals stand to continue, with the likes of JPMorgan Chase & Co. chief Jamie Dimon on Friday saying that he would consider such an acquisition.
The interest highlights a shift since the onset of the pandemic. “People still need growth,” said Craig McCracken, co-head of ECM at Wells Fargo. “Similar to what happened in the aftermath of the financial crisis, the question has shifted from -- do you have enough cash -- to how are you going to grow. When you hear that, you tend to see a pickup in M&A.”
Big Deals
M&A transactions in technology, media and telecommunications ticked up in the back half of 2020 amid a flood of big-ticket transactions.
Over the last couple months, Salesforce.com Inc., in its biggest acquisition play to date, acquired Slack Technologies Inc. for $27.7 billion while chipmaker Advanced Micro Devices Inc. snapped up Xilinx Inc. for $35 billion, which may prompt more consolidation.
“Deals usually tend to come when a competitor is moving in. No one wants to be left behind,” said Fred Boucher, a risk-arbitrage analyst at Susquehanna Financial Group.
Information technology companies mentioned as takeover candidates by survey participants included 2U Inc., Boingo Wireless Inc., Cloudera Inc., Envestnet Inc., Evertec Inc., Micro Focus International Plc, Moneygram International Inc., and Nokia Oyj, the last of which also appeared on M&A watchlists in Europe.
Property information and analytics provider CoreLogic Inc. and defense and transportation systems provider Cubic Corp. were mentioned the most. Both are tech-related companies that sit in the industrials sector and landed on watchlists as a result of activist involvement. DXC Technology Co. was also mentioned more than once, and was recently confirmed to be the target of French IT firm Atos SE.
M&A Under Biden
M&A watchers are focused on new political leadership in Washington and whether appointments at the Department of Justice, Federal Trade Commission, and Federal Communications Commission will create a conducive environment for dealmaking.
“Biden is a moderate, and not business-unfriendly, but Dems own everything going forward,” Brett Buckley, a strategist at WallachBeth Capital, said.
Buckley said he sees corporate taxes eventually increasing on par with other developed countries in a policy departure from the Trump administration, but he said the U.S. will likely not be softer on China.
Bloomberg’s survey was conducted from Jan. 7 to Jan. 14, with participants naming 45 companies as potential candidates.
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