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.
Technology
Nvidia positioned to weather Trump tariffs, chip demand ‘off the charts,’ says Altimeter’s Gerstner
Altimeter Capital CEO Brad Gerstner said Thursday that he’s moving out of the “bomb shelter” with Nvidia and into a position of safety, expecting that the chipmaker is positioned to withstand President Donald Trump’s widespread tariffs.
“The growth and the demand for GPUs is off the charts,” he told CNBC’s “Fast Money Halftime Report,” referring to Nvidia’s graphics processing units that are powering the artificial intelligence boom. He said investors just need to listen to commentary from OpenAI, Google and Elon Musk.
President Trump announced an expansive and aggressive “reciprocal tariff” policy in a ceremony at the White House on Wednesday. The plan established a 10% baseline tariff, though many countries like China, Vietnam and Taiwan are subject to steeper rates. The announcement sent stocks tumbling on Thursday, with the tech-heavy Nasdaq down more than 5%, headed for its worst day since 2022.
The big reason Nvidia may be better positioned to withstand Trump’s tariff hikes is because semiconductors are on the list of exceptions, which Gerstner called a “wise exception” due to the importance of AI.
Nvidia’s business has exploded since the release of OpenAI’s ChatGPT in 2022, and annual revenue has more than doubled in each of the past two fiscal years. After a massive rally, Nvidia’s stock price has dropped by more than 20% this year and was down almost 7% on Thursday.
Gerstner is concerned about the potential of a recession due to the tariffs, but is relatively bullish on Nvidia, and said the “negative impact from tariffs will be much less than in other areas.”
He said it’s key for the U.S. to stay competitive in AI. And while the company’s chips are designed domestically, they’re manufactured in Taiwan “because they can’t be fabricated in the U.S.” Higher tariffs would punish companies like Meta and Microsoft, he said.
“We’re in a global race in AI,” Gerstner said. “We can’t hamper our ability to win that race.”
Jaque Silva | Nurphoto | Getty Images
YouTube on Thursday announced new video creation tools for Shorts, its short-form video feed that competes against TikTok.
The features come at a time when TikTok, which is owned by Chinese company ByteDance, is at risk of an effective ban in the U.S. if it’s not sold to an American owner by April 5.
Among the new tools is an updated video editor that allows creators to make precise adjustments and edits, a feature that automatically syncs video cuts to the beat of a song and AI stickers.
The creator tools will become available later this spring, said YouTube, which is owned by Google.
Along with the new features, YouTube last week said it was changing the way view counts are tabulated on Shorts. Under the new guidelines, Shorts views will count the number of times the video is played or replayed with no minimum watch time requirement.
Previously, views were only counted if a video was played for a certain number of seconds. This new tabulation method is similar to how views are counted on TikTok and Meta’s Reels, and will likely inflate view counts.
“We got this feedback from creators that this is what they wanted. It’s a way for them to better understand when their Shorts have been seen,” YouTube Chief Product Officer Johanna Voolich said in a YouTube video. “It’s useful for creators who post across multiple platforms.”
WATCH: TikTok is a digital Trojan horse, says Hayman Capital’s Kyle Bass
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