SYMC Symantec Corporation

By Rolfe Winkler and Anne Steele 

The pace of mergers and acquisitions may have eased from last year's record, but a pair of deals announced since Sunday -- Microsoft Corp.'s $26.2 billion proposed acquisition of LinkedIn Corp. and Symantec Corp.'s $4.65 billion agreement to buy Blue Coat Systems Inc. -- show that one corner of the market is alive and well: technology.

So far this year, there have been about $260 billion of tech deals announced globally, according to Dealogic data. That is the second-fastest pace ever for the period, after 2000. Technology is the busiest sector for M&A this year, as it was in 2015, the data show. Analysts predict the pace will continue -- and that the LinkedIn deal could be a catalyst for other such moves by tech giants like Microsoft.

Compare that with the overall merger market, where volume is down 18% so far this year to $1.45 trillion. After striking deals at a record pace last year as they grapple with sluggish economic growth, companies have turned more cautious as a result of market volatility and pushback from regulators.

The tech industry has largely been immune to the slowdown, however, and market declines have made some targets in the industry more affordable, analysts say. Take Microsoft's deal for LinkedIn. While the software pioneer is paying a roughly 50% premium to LinkedIn's closing price on Friday, the $196-a-share price is still well below LinkedIn's high of more than $250 early last year.

The deal represents a departure from broader M&A trends in another respect. The recent boom has been characterized by combinations of big companies in the same line of business seeking to cut overlapping costs -- tie-ups shareholders have largely applauded. But by buying the social network, Microsoft is expanding its horizons. That may help explain why its shareholders reacted cautiously, driving down the company's stock 2.6% to $50.14 on the news.

One company whose shares fared better is Twitter Inc. Its stock rose 3.8% to $14.55 Monday as the LinkedIn deal stoked long-held investor hopes that another cash-rich tech giant would scoop up the beleaguered social-media company.

"They have substantial analytics and data that's relevant to a lot of companies," said James Cakmak, an analyst at equity researcher Monness, Crespi, Hardt & Co. Twitter is valued at just less than 3 times estimates of its next twelve month revenue, according to Factset. LinkedIn's multiple, on that basis leapt from 4 times to 6 times when the deal was announced.

"That valuation disconnect could create opportunity," Mr. Cakmak said.

Social-service providers like GoDaddy Inc., Yelp Inc., GrubHub Inc. and Zillow Group Inc. also have valuations that make them attractive to potential buyers, he said.

GoDaddy declined to comment. The other companies didn't immediately respond to a request for comment.

The LinkedIn deal also could give a boost to the venture-capital and startup communities, possibly signaling the return of deal making to that corner of the tech industry as large companies seek to boost revenue growth. Private tech companies have seen a 25% to 50% cut in their value, said UBS Securities analyst Brent Thill, as investors have in many cases become wary of their ability to turn revenue growth into profit.

Venture capitalists and the entrepreneurs they back have two primary ways to cash in on their startup investments: an initial public offering or acquisition. The IPO market has been moribund since late last year, meaning M&A is in many cases their best hope now.

The LinkedIn deal is "extremely positive for Silicon Valley for several reasons," argues Peter Hsing, managing director of venture firm Merus Capital and previously an executive on Microsoft's mergers-and-acquisitions team. "It demonstrates that major tech players are not hesitant to make very large moves."

Blue Coat may stoke such hopes. The cyberdefense technology company was just weeks away from an expected debut on the New York Stock Exchange when its private-equity backers elected to sell the company to Symantec instead. Possibly encouraging other such buyers, Symantec shares rose 5.3% to $18.21 Monday on news of the acquisition.

Others aren't convinced there will be a resurgence in acquisitions of private venture-backed companies.

Giant tech players are mostly showing an appetite for more mature companies, said Matt Ocko, co-managing partner of venture firm Data Collective. He cited Salesforce.com Inc.'s recently announced acquisition of marketing-software firm Demandware Inc.

"Anyone jealous of [Microsoft] is likely to try for another fairly mature public company," Mr. Ocko said.

Write to Rolfe Winkler at rolfe.winkler@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

June 13, 2016 20:06 ET (00:06 GMT)

Symantec (NASDAQ:SYMC)
Historical Stock Chart
From Mar 2024 to Apr 2024

Symantec (NASDAQ:SYMC)
Historical Stock Chart
From Apr 2023 to Apr 2024