Activists are eyeing tech stocks ahead of expected M&A rebound after two-year lull
Paul Singer speaking at the Delivering Alpha conference in New York on Sept. 13, 2016.
David A. Grogan | CNBC
Activist investors are circling the tech market.
That’s because, after a two-year plunge in mergers and acquisitions across the industry, there are signs of life to start 2024, with expectations that many more deals are on the way.
For some activists, who take significant stakes in companies often with the ultimate objective of pushing for a sale at a higher price, their campaign efforts can only fully pay off if there’s an active market of buyers. While they can pressure executives to cut costs and improve operations, to profit from their investments, they generally need to see some sort of deal.
An investment banker who advises tech companies told CNBC that his firm is warning clients of a changing environment. The banker, who asked not to be named because he wasn’t authorized to speak on the matter, said his team is telling companies that longer-term activist shareholders are poised to start pushing for breakups or sales, as cost-cutting opportunities diminish.
Tech, media and telecom deal volume peaked at $856 billion in 2021, the year the bull market of more than a decade came to an end. That number dropped to $565 billion in 2022 and plummeted by more than half last year to $255 billion, according to PwC.
Rather than opening their wallets for acquisitions, companies were announcing mass layoffs and other cost cuts, acknowledging that they’d hired too aggressively during the Covid boom. Instead of growth subsidized by the capital markets, tech companies started focusing on operational efficiencies.
Layoffs in the industry jumped about 60% last year, with almost 1,200 companies eliminating more than 262,000 jobs, according to the website Layoffs.fyi.
“A very big portion of these companies are engaging in these layoffs because they are under pressure from an activist behind the scenes,” Sidley Austin shareholder activism and defense co-chair Kai Liekefett told CNBC. “Activists believe that founder-led companies are rarely run efficiently. They think they are run like a frat house.”
While job cuts continue to hit the headlines — January has been the busiest month for layoffs since March — some companies are showing a willingness to start spending big again.
So far this month two mega tech deals have been announced. Semiconductor design and software company Synopsys agreed to acquire Ansys, an engineering and product design software firm, for about $35 billion. And Hewlett Packard Enterprise said it’s buying networking gear vendor Juniper Networks for around $14 billion. Juniper had been targeted by activist hedge fund Elliott Management almost a decade ago.
Also in January, diversified tech company Roper announced its $1.75 billion purchase of software developer Procare Solutions.
Two different activists are pushing Twilio to sell itself or break up, CNBC has previously reported. In January, Piper Sandler analysts floated Adobe or Zoom as potential strategic buyers of Twilio, which has a market cap of over $13 billion.
Salesforce was able to put activist campaigns to bed last year, largely through quick cost-cutting measures. In January 2023, shortly after Elliott was reported to have a multibillion-dollar investment in Salesforce, the company cut 10% of its staff and emphasized a renewed focus on profitability. Salesforce just eliminated another 700 jobs, or about 1% of its workforce, according to the Wall Street Journal.
Activists have shown in the recent past they can push tech companies toward the M&A market.
In October 2022, Starboard Value disclosed a nearly 5% stake in Splunk and called the company a “highly strategic” asset for the right acquirer, specifically noting Cisco’s interest in the company. Less than a year later, Cisco said it would acquire Splunk for $28 billion deal, up from a market cap of about $11.4 billion when news of Starboard’s involvement first surfaced.
Cisco chairman and CEO Chuck Robbins and Splunk CEO Gary Steele on CNBC’S Squawk on the Street.
CNBC
Renewed dealmaking isn’t the only development keeping activists busy.
In 2022, the SEC introduced what’s called the universal proxy card, which lists all director nominees, from both management and shareholders, on one card rather than competing slates.
The rule hasn’t yet had much of an effect, but there are signs that could be changing. At Starbucks, for example, trade union coalition Strategic Organizing Center is angling to secure board seats on a campaign focused on the company’s treatment of workers, the Financial Times reported.
An activist advisor, who requested anonymity in order to speak freely about sensitive matters, said that numerous proxy fights are “in the pipeline,” and that companies may be less willing to hand over control of the board without a battle.
A driver for an independent contractor to FedEx delivers packages on Cyber Monday in New York, US, on Monday, Nov. 27, 2023.
Stephanie Keith | Bloomberg | Getty Images
President Donald Trump on Wednesday signed an executive order shutting the de minimis trade loophole, effective May 2.
Trump in February abruptly ended the de minimis trade exemption, which allows shipments worth less than $800 to enter the U.S. duty-free. The order overwhelmed U.S. Customs and Border Protection employees and caused the U.S. Postal Service to temporarily halt packages from China and Hong Kong. Within days of its announcement, Trump reversed course and delayed the cancellation of the provision.
Wednesday’s announcement, which came alongside a set of sweeping new tariffs, gives customs officials, retailers and logistics companies more time to prepare. Goods that qualify under the de minimis exemption will be subject to a duty of either 30% of their value, or $25 per item. That rate will increase to $50 per item on June 1, the White House said.
Use of the de minimis provision has exploded in recent years as shoppers flock to Chinese e-commerce companies Temu and Shein, which offer ultra-low cost apparel, electronics and other items. The U.S. Customs and Border Protection has said it processed more than 1.3 billion de minimis shipments in 2024, up from over 1 billion shipments in 2023.
Critics of the provision say it provides an unfair advantage to Chinese e-commerce companies and creates an influx of packages that are “subject to minimal documentation and inspection,” raising concerns around counterfeit and unsafe goods.
The Trump administration has sought to close the loophole over concerns that it facilitates shipments of fentanyl and other illicit substances on the claims that the packages are less likely to be inspected by customs agents.
Temu and Shein have taken steps to grow their operations in the U.S. as the de minimis loophole has come under greater scrutiny. After onboarding sellers with inventory in U.S. warehouses, Temu recently began steering shoppers to those items on its website, allowing it to speed up deliveries. Shein opened distribution centers in states including Illinois and California in 2022, and a supply chain hub in Seattle last year.
WATCH: President Trump signs executive orders for reciprocal tariffs
Apple CEO Tim Cook, center, watches during the inauguration ceremonies for President Donald Trump, right, and Vice President JD Vance, left, in the rotunda of the U.S. Capitol in Washington, Jan. 20, 2025.
Shawn Thew | Afp | Getty Images
Apple slid more than 6% in late trading Wednesday and led a broader decline in tech stocks after President Donald Trump announced new tariffs of between 10% and 49% on imported goods.
The majority of Apple’s revenue comes from devices manufactured primarily in China and a handful of other Asian countries. Nvidia, which manufactures new chips in Taiwan and assembles its artificial intelligence systems in Mexico and elsewhere, fell about 4%, while electric vehicle company Tesla dropped 4.5%.
Across the rest of the megacap universe, Alphabet, Amazon and Meta all dropped between 2.5% and 5%, and Microsoft was down by almost 2%.
If Apple’s postmarket loss is matched in regular trading Thursday, it would be the steepest decline for the stock since September 2020.
Trump on Wednesday afternoon said the new taxes on imported goods would be a “declaration of economic independence” for the country. He announced a 10% blanket tariff on all imports, and higher duties for specific countries, including 34% for China, 20% for European nations, and 24% for Japanese imports, based on what tariffs they charge on U.S. exports, Trump said.
“We will supercharge our domestic industrial base, we will pry open foreign markets and break down foreign trade barriers,” Trump said during his speech. “Ultimately, more production at home will mean stronger competition and lower prices for consumers.”
Stocks broadly got hit by Trump’s announcements. An exchange-traded fund tracking the S&P 500 slid 2.8%, while an ETF following the Nasdaq 100 lost more than 3%.
During his speech, Trump praised Apple, Meta, and Nvidia for spending money and investing in the United States.
“Apple is going to spend $500 billion, they never spent money like that here,” Trump said. “They’re going to build their plants here.”
The Nasdaq just wrapped up its worst quarter since 2022, dropping 10% in the first three months of the year, though the tech-heavy index rose in each of the first two days of the second quarter.
WATCH: President Trump signs executive orders for reciprocal tariffs
Guests including Mark Zuckerberg, Lauren Sanchez, Jeff Bezos, Sundar Pichai and Elon Musk attend the Inauguration of Donald J. Trump in the U.S. Capitol Rotunda on January 20, 2025 in Washington, DC. Donald Trump takes office for his second term as the 47th president of the United States.
Julia Demaree Nikhinson | Getty Images
Amazon submitted a bid to the White House to purchase the social media app TikTok from its Chinese owners, CNBC has confirmed.
The company sent its proposal in a letter this week to Vice President JD Vance and Commerce Secretary Howard Lutnick, according to a source familiar with the matter who asked not to be named because the discussions are confidential. The parties aren’t treating the bid seriously, however, given that it was submitted just days before a deadline staving off a U.S. ban is set to expire, the person said.
Amazon declined to comment.
The e-commerce company’s offer, which was first reported by The New York Times, comes as TikTok’s fate in the U.S. is up in the air. The short-form video app faces another potential shutdown in the U.S. on April 5 if ByteDance, its parent company, can’t reach a deal to divest TikTok’s American operations. Lawmakers passed a bill last year setting a Jan. 19 deadline for the sale, but Trump signed an executive order granting a 75-day extension for a potential deal.
Trump could announce a decision on TikTok’s fate in the U.S. as soon as Wednesday, sources familiar with the situation told CNBC’s David Faber. Mobile technology company AppLovin has also made a bid for TikTok, Faber reported separately, citing sources familiar with the matter.
TikTok has emerged as a major hub for e-commerce as it has poured money into growing its online marketplace, called TikTok Shop. TikTok’s lucrative marketplace, coupled with the app’s more than 170 million users, could be an attractive asset for Amazon. Following TikTok’s success, Amazon launched and then shuttered a short-form video service of its own.
Last August, the two companies formed a partnership that allowed TikTok users to link their account with Amazon and make purchases from the site without leaving the app. The deal attracted scrutiny from lawmakers who were concerned about its potential national security risks.
WATCH: How TikTok Shop is beating Amazon and Temu in social shopping
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