7 Tech Stocks Poised for Major Gains Through Acquisitions
M&A momentum in the technology sector is predicted to accelerate sharply in the latter part of 2018.
The technology industry is witnessing a surge in takeover activity, with experts forecasting an even more intense wave of mergers and acquisitions as 2018 progresses. According to Morgan Stanley’s analysis referenced by Business Insider, the total value of acquisition offers in the U.S. jumped from $312 billion in Q1 to $405 billion in Q2 across all sectors. Deloitte’s recent report, highlighted by ComputerWorldUK, reveals that tech acquisitions now lead overall M&A trends, fueled in part by Apple Inc.’s (AAPL) massive $250 billion cash reserve, positioning the company as a dominant force in the acquisition landscape.
Investors stand to benefit significantly by targeting shares of companies likely to be acquired. Reflecting this, Morgan Stanley has refreshed its list of top tech firms primed for buyouts, featuring Cypress Semiconductor Corp. (CY), First Solar Inc. (FSLR), Pure Storage Inc. (PSTG), LogMeIn Inc. (LOGM), Okta Inc. (OKTA), Etsy Inc. (ETSY), and HubSpot Inc. (HUBS).
Top 7 Tech Stocks Targeted for Acquisition
Source: Morgan Stanley
How These Targets Are Identified
Morgan Stanley employs its ALERT (Acquisition Likelihood Estimate Rankings Tool) model to forecast which stocks might receive full tender offers within the next year, based on a variety of quantitative indicators, as detailed in their July 26 report, "US M&A Activity: Mixed Signals in the Second Quarter." Stocks that rank in the top 20% of ALERT’s evaluation and exhibit strong liquidity are considered prime candidates for acquisition. The seven tech companies listed meet these stringent criteria. Since ALERT’s inception in early 2013, approximately 6.8% of screened stocks have been successfully acquired within 12 months. Cypress, Etsy, and Pure Storage serve as key examples explored further below.
Cypress Semiconductor: Loyal Clientele Driving Value
Cypress Semiconductor is frequently cited as a prime acquisition target amid ongoing consolidation in the semiconductor industry, with Broadcom Inc. (AVGO) often mentioned as a potential suitor. Broadcom’s growth strategy heavily relies on acquisitions, and the semiconductor sector has realized substantial efficiency improvements through such deals. (For additional insights, see: 9 Acquisition Prospects Broadcom May Consider After Qualcomm.)
Cypress is positioning itself as a key player in the Internet of Things (IoT) arena, where interconnected devices communicate over the internet. This expanding sector boosts Cypress’s appeal as a buyout candidate. According to The Motley Fool, Cypress is shifting focus from low-margin commodity chips toward premium products with "sticky" customers who prioritize quality, reliability, and durability, as noted by the company’s CEO.
Etsy: A Growing Marketplace with Broad Appeal
Etsy operates a unique online marketplace originally centered on small-scale sellers of handcrafted, one-of-a-kind goods. As it has expanded, sellers offering mass-market products have become increasingly significant, though Etsy maintains its identity as "the global marketplace for unique and creative goods." In Q1, Etsy reported revenue of $120.9 million, marking a 24.8% increase year-over-year, per the company’s earnings statement.
Serving 35 million active buyers with over 50 million listings, Etsy recently forged a referral partnership with DaWanda, a German-based marketplace specializing in gifts and handmade items with 2 million active buyers and roughly 4 million listings. Seeking Alpha highlights Etsy as a frequent acquisition candidate for major e-commerce giants like Amazon.com Inc. (AMZN), eBay Inc. (EBAY), Alibaba Group Holding Ltd. (BABA), and Walmart Inc. (WMT).
Pure Storage: Leading the Flash Storage Revolution
Pure Storage specializes in solid-state storage solutions utilizing flash memory technology, which relies on semiconductor chips rather than traditional magnetic tapes or disks. As Trintri.com explains, solid-state storage offers faster performance, enhanced reliability, and reduced energy consumption. Founded less than a decade ago, Pure Storage now surpasses $1 billion in annual revenue, according to The Next Platform, and counts about one-third of Fortune 500 companies among its clientele. Cisco Systems Inc. (CSCO), a top networking equipment provider, is rumored as a potential acquirer, which would broaden its data storage offerings.
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