Oppenheimer predicts a wave of M&As, with Zoom (ZM.US), Twilio (TWLO.US) among potential targets.
Oppenheimer said that the market expects the Fed to start cutting rates in September and M&A activity could pick up. The firm noted that Confluent (CFLT.US), Dynatrace(DT.US), Elastic NV (ESTC.US), JFrog(FROG.US), SentinelOne (S.US), Twilio(TWLO.US) and Zoom Video (ZM.US) are all likely to be acquired.
Analyst Ittai Kidron said, “We believe buyers (especially PE buyers) may be more willing to use debt to finance larger transactions and expect to refinance at lower rates in the near/medium term.”
Kidron said potential deal prices could be 40%-50% higher than current valuations. He said, “We believe potential acquisition targets should have one or more of the following characteristics: (1) high gross margin; (2) strategic fit with larger platform products; (3) opportunity to improve GTM/execution challenges for larger strategic or financial buyers; (4) attractive valuation and strong cash flow generation potential.”
Oppenheimer believes that Gitlab (GTLB.US) is very likely to be acquired at a 10-12x multiple. The Wall Street Journal reported last month that GitLab was exploring a sale, after the San Francisco-based company attracted acquisition interest from rivals including cloud monitoring company Datadog (DDOG.US).
Rapid7 (RPD.US) is another company that Oppenheimer believes is likely to be acquired, and the firm believes a deal price could reach a multiple of 4.5-5.5 times revenue. Jana Partners, an activist investor, has built a stake in Rapid7 and plans to push for a sale. Rapid7 has received a bid from private equity firm Thoma Bravo, but believes the private equity firm and cybersecurity company are too far apart on price.
The firm believes another technology company that is likely to be acquired is Zoom(ZM.US), with a potential multiple of 4-5 times revenue. Zoom Video could attract buyers including Google, AT&T, T-Mobile, Verizon and financial sponsors.