Investment bank Oppenheimer expects M&A activities to pick up, with companies like Zoom and Twilio being potential targets
Investment bank Oppenheimer expects that due to market expectations of the Federal Reserve starting to cut interest rates in September, investment and M&A activities may pick up. The bank points out that the likelihood of Confluent, Dynatrace, Elastic NV, JFrog, SentinelOne, Twilio, and Zoom Video being acquired is moderate to high. Analysts believe that the potential transaction prices may be 40%-50% higher than their current valuations. In addition, GitLab and Rapid7 are also considered companies that may be acquired
Investment bank Oppenheimer stated that due to market expectations of the Fed starting rate cuts in September, M&A activities may pick up. The bank pointed out that the likelihood of acquisitions for Confluent (CFLT.US), Dynatrace (DT.US), Elastic NV (ESTC.US), JFrog (FROG.US), SentinelOne (S.US), Twilio (TWLO.US), and Zoom Video (ZM.US) is moderate to high.
Analyst Ittai Kidron said, "We believe buyers (especially PE buyers) may be more willing to use debt to finance larger deals and are expected to refinance at lower rates in the near/medium term."
Kidron mentioned that the potential deal prices may be 40%-50% higher than their current valuations. He stated, "We believe potential acquisition targets should have one or more of the following characteristics: (1) high gross retention rates; (2) strategic alignment with larger platform products; (3) provide opportunities for larger strategic or financial buyers to improve GTM/execution challenges; (4) attractive valuation and strong potential for cash flow generation."
Oppenheimer assumes that Gitlab (GTLB.US) is very likely to be acquired at a P/E ratio of 10-12 times. Financial media outlet Smart Finance reported last month that GitLab is exploring a sale, attracting acquisition interest from peers including cloud monitoring company Datadog (DDOG.US).
Rapid7 (RPD.US) is another company that Oppenheimer believes is highly likely to be acquired, with the deal price potentially reaching 4.5-5.5 times revenue. Activist investor Jana Partners has accumulated shares in Rapid7 and plans to push for a sale. Rapid7 has received an offer from private equity firm Thoma Bravo, but believes there is a significant price gap between the private equity firm and the cybersecurity company.
The bank believes another tech company with a high likelihood of being acquired is Zoom (ZM.US), with a potential P/E ratio of 4-5 times. Zoom Video may attract buyers including Google, AT&T, T-Mobile, Verizon, and financial sponsors
