This was the year of crazy, everywhere, all-the-time corporate mergers, and the technology industry was no exception. The value of tech deals reached $450 billion, well short of the 2000 merger frenzy topped by AOL and Time Warner but still a big jump from recent years. And yet, the eye-popping headline number doesn’t tell the whole story.
The mightiest tech companies were meek when it came to mergers and acquisitions in 2015. Richly valued startups neither went public nor were bought out in big numbers. And a surprising number of ailing tech giants that all do similar things still remains. In the waning hours of 2015, here's a look at whether those M&A trends will persist in 2016.
Will the giants join the M&A boom? In 2015, the deals were driven in large part by semiconductor manufacturers, which are going through a consolidation phase yet don't exactly garner the excitement of, say, the acquisition of Twitter. Yes, tech deals were a bit of a snooze this year. Apologies to the bankers. Don’t cry on your huge piles of money from merger advisory work.
Deals were motivated by reasons as sensible but dull as a pair of Birkenstock sandals: Borrowing on the cheap; finding private homes for aging tech companies that were going nowhere; consolidating markets like computer chips where a glut of competitors was hurting prices. The boldfaced names in technology largely sat out the party. Apple, Google, Microsoft, Amazon and Facebook didn’t make a single acquisition this year valued at $1 billion or more. Neither did Cisco, IBM or Oracle -- huge older companies with slow or sliding sales that people have long expected to buy their way into expanding areas of technology.
It is true that prices for many potential acquisition targets were simply too high, particularly for companies like IBM and Cisco with depressed stock prices. It could be boards were fearful they’d face fuming shareholder activists if they struck big acquisitions. Yet history has shown even some of the tech companies built on homegrown products can drastically improve their fortunes through acquisitions. In just one example, Google bought Android, YouTube, DoubleClick and AdMob – all crucial foundations for the current Alphabet.
The end of the year means the perennial placing of bets on what Apple should or will purchase. It hardly ever makes large acquisitions, but that doesn’t stop Apple from being a rumored acquirer for everything given its $200 billion cash stockpile and, you know, hope and rainbows. Adobe, Box and GoPro were on FBR Capital Markets’ list of potential Apple acquisition candidates. Jim Cramer suggested Harman, Pandora, Fitbit and Verifone. It's worth noting that few people predicted Apple's biggest ever deal, the roughly $3 billion purchase of Beats in 2014.
More quietly, tech executives, investors or deal makers are wondering whether Google might seek to buy a cloud-computing company like Docker or Mesosphere to bolster its own cloud business, which seems to be a focus of attention in Mountain View now. Growth-challenged big tech companies could look to buy their way into business software or data security companies now that firms like Workday, Splunk and FireEye are a bit cheaper than they were at the same point last year.
Where does consolidation turn next? This year it was the chip makers turn, and they don’t seem to be done. There also were predictions of cascading mergers of old-world tech titans if one of them kicked it off. That didn’t happen (yet) after Dell’s $67 billion deal to take over data storage company EMC. Industry executives say rationales still exist to slim the ranks of lumbering companies like IBM, Cisco, SAP and Oracle that sell corporate technology and have semioverlapping technologies.
Hewlett Packard Enterprise is one potential target in the spotlight. The company formerly known as Hewlett-Packard made itself more of an acquirable nugget with a split into two in November. The new HPE, like the old H-P, doesn’t have much compelling homegrown technology, even though it has a great brand name and lots of customers. HPE, which sells computer servers, consulting services and software, has a market value of $26 billion -- big but not impossible for a takeover. HPE CEO Meg Whitman was asked in a CNBC interview in November whether her newly cleaved-in-two company was an acquisition target. “You never know what’s going to happen. This is a very dynamic environment,” she responded.
Yet crews who work on corporate mergers suggest tech deals may have already reached their peak for consolidation or other reasons. About 44 percent of deal makers expect tech M&A spending to increase in 2016, compared with 48 percent who had predicted an increase in deals a year earlier, according to an October survey conducted by law firm Morrison Foerster and research firm 451 Research. One-quarter of the survey respondents said they expected M&A spending to decrease, compared with 16 percent who expected a decline in the same survey last year. (Those downers from a year ago were very, very wrong.) Remember, these are the most optimistic people on the planet when it comes to their own business. If they’re feeling a bit less bullish, it could mean a slower pace for deals.
Will unicorns go to the glue factory? Tech stocks held up in 2015. More money than ever poured into private tech startups, and the births of “unicorns” -- startups valued at $1 billion or more -- became commonplace. The IPO market, however, was awful. Half as many tech companies went public in the U.S. this year compared with 2014, according to data from Ernst & Young, and the value of new stock sales was far less than the money tech startups gobbled up this year from private investors. The odd combination of events has meant a scary large crop of richly valued tech startups gathering in the maybe, someday IPO holding room.
Now it is getting harder for startups to collect piles of investor money outside the stock markets. That is making IPOs look a bit more attractive, even if companies need to go public at valuations that are less stratospheric than the ones they have now. One tech company is already in the IPO queue for 2016. Nutanix, which makes computing equipment and software for corporate data centers, filed its IPO paperwork last week. Changing dynamics for startup financing also may push some young tech firms to accept a takeover offer rather than risk continuing on their independent, cash-burning paths. But they could also end up dying while they wait.
What happens to Yahoo? So much ink has been spilled trying to answer this question in 2015. And in 2006 through 2014. Foiled by fear of the IRS, Yahoo recently decided to punt the operating pieces of the company into a newly formed entity to save billions of dollars on taxes. That tricky reformulation of old Yahoo as new Yahoo will take a year or more to pull off, which gives the board members plenty of time to throw up their hands and sell the company instead.
In a way, Yahoo directors made a brilliant decision to put off a decision about a sale and see what happens. If the company's operating performance improves, a new Yahoo will be more valuable than it is today. If not, the company can opt for Plan B and sell. It’s also possible fuming shareholders may force the board to sell, even on the cheap. In any case, much ink will be spilled in 2016 about Yahoo. Again.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Counterexample: Microsoft bought Nokia, aQuantive and Skype.
We are taking suggestions for names of the "new" Yahoo, which basically consists of the old Yahoo, minus the company's stockholdings in Chinese e-commerce firm Alibaba.
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