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Let The Tech Takeout Games Begin!

15 March 2013 in Trading Ideas

The last quarter of 2012 salvaged a degree of optimism in what was otherwise another off year in post-financial-crisis corporate takeovers.

As Bloomberg reported, global mergers and acquisitions rose to their highest level in four years in the fourth quarter, despite ongoing concerns about economic growth in Europe and China, as well as the federal government’s “fiscal cliff” battle.1

As one would expect, the technology sector saw similar results, with fourth-quarter deals totaling $59 billion representing the highest level in five quarters.

Optimism is a relative thing, however, and a recent projection by 451 Research Group finds that risk-aversion continues to be a theme for potential acquirers – even among companies with ample cash and a need to push growth higher.2 According to the research firm, that means fewer large acquisitions in the tech sector in 2013 — and more scrutiny for those under consideration.

But that doesn’t mean no acquisitions, and the potential for outsized M&A activity in certain tech sectors could present an opportunity for investors of smaller companies targeted by larger firms.

Which sectors? For those, we get a little help from a recent report from Price Waterhouse Coopers that highlighted what could drive a majority of tech deals in 2013. In short, the firm expects cloud software (aka software-as-a-service), mobile devices, analytics and Big Data as fueling current and future M&A growth — and a fundamental shift in deal volumes to software and Internet deals based on these technologies.3

Another focus: security. As 451 Research notes, shared computing resources accessed by employees in different locations and different devices has put a premium on correct identity.

This potential move toward more takeovers of smaller public companies in the cloud software, analytics and cyber security industries is the philosophy behind the new Tech Takeout Targets motif, which identifies the stocks of more than 20 companies and places them into a single portfolio.

While there’s no guarantee any of these names will be snapped up anytime soon – if ever – investors may be intrigued enough by an opportunity to inspect what may be tech’s hottest areas this year.

1Aaron Kirchfeld and Serena Saitto, “Fourth-Quarter M&A Surge Spurs Optimism After 2012 Deals Decline, Bloomberg News, Dec. 27, 2012.
2Tech M&A Outlook 2013, 451 Research Group, https://451research.com/report-short?entityId=75749,” (accessed March 12, 2013).
3Louis Columbus, “How Cloud Computing Is Redefining The M&A Landscape,” Forbes.com, Feb. 26, 2013, “http://www.forbes.com/sites/louiscolumbus/2013/02/26/how-cloud-computing-is-redefining-the-ma-landscape/,” (accessed March 12, 2013.)