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.
Meta’s Mark Zuckerberg plans to visit South Korea, scheduling key meetings during the trip, according to a statement by Meta on Wednesday, which did not provide further details. Reportedly, Zuckerberg is anticipated to meet with Samsung Electronics chairman Jay Y. Lee later this month to discuss AI chip supply and other generative AI issues, as per the South Korean newspaper Seoul Economic Daily, citing unnamed sources familiar with the matter.
Alex Wong | Getty Images News | Getty Images
Meta extended its ban on new political ads on Facebook and Instagram past Election Day in the U.S.
The social media giant announced the political ads policy update on Monday, extending its ban on new political ads past Tuesday, the original end date for the restriction period.
Meta did not specify the day it will lift the restriction, saying only that the ad blocking will continue “until later this week.” The company did not say why it extended the political advertising restriction period.
The company announced in August that any political ads that ran at least once before Oct. 29 would still be allowed to run on Meta’s services in the final week before Election Day. Other political ads will not be allowed to run.
Organization with eligible ads will have “limited editing capabilities” while the restriction is still in place, Meta said. Those advertisers will be allowed to make scheduling, budgeting and bidding-related changes to their political ads, Meta said.
Meta enacted the same policy in 2020. The company said the policy is in place because “we recognize there may not be enough time to contest new claims made in ads.”
Google-parent Alphabet announced a similar ad policy update last month, saying it would pause ads relating to U.S. elections from running in the U.S. after the last polls close on Tuesday. Alphabet said it would notify advertisers when it lifts the pause.
Nearly $1 billion has been spent on political ads over the last week, with the bulk of the money spent on down-ballot races throughout the U.S., according to data from advertising analytics firm AdImpact.
Watch: Tech still investing big in AI development despite few breakout products.
Technology
Jeff Bezos and OpenAI invest in robot startup Physical Intelligence at $2.4 billion valuation
Sam Altman, CEO of OpenAI, attends the 54th annual meeting of the World Economic Forum, in Davos, Switzerland, January 18, 2024 (L), and Amazon CEO Jeff Bezos speaks during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 2, 2021.
Reuters
Physical Intelligence, a robot startup based in San Francisco, has raised $400 million at a $2.4 billion post-money valuation, the company confirmed Monday to CNBC.
Investors included Amazon founder Jeff Bezos, OpenAI, Thrive Capital and Lux Capital, a Physical Intelligence spokesperson said. Khosla Ventures and Sequoia Capital are also listed as investors on the company’s website.
Physical Intelligence’s new valuation is about six times that of its March seed round, which reportedly came in at $70 million with a $400 million valuation. Its current roster of employees includes alumni of Tesla, Google DeepMind and X.
The startup focuses on “bringing general-purpose AI into the physical world,” per its website, and it aims to do this by developing large-scale artificial intelligence models and algorithms to power robots. The startup spent the past eight months developing a “general-purpose” AI model for robots, the company wrote in a blog post. Physical Intelligence hopes that model will be the first step toward its ultimate goal of developing artificial general intelligence. AGI is a term used to describe AI technology that equals or surpasses human intellect on a wide range of tasks.
The news comes days after OpenAI launched a search feature within ChatGPT, its viral chatbot, that positions the AI startup to better compete with search engines like Google, Microsoft‘s Bing and Perplexity. Last month, OpenAI also closed its latest funding round at a valuation of $157 billion.
Physical Intelligence’s vision is that one day users can “simply ask robots to perform any task they want, just like they can ask large language models (LLMs) and chatbot assistants,” the startup wrote in the blog post. In case studies, Physical Intelligence details how its tech could allow a robot to do laundry, bus tables or assemble a box.
To Barry Diller, a friend of Amazon founder Jeff Bezos, the decision for The Washington Post not to endorse a candidate in tomorrow’s presidential election was “absolutely principled” — and poorly timed, he said Monday on CNBC’s Squawk Box.
“They made a blunder — it should’ve happened months before, and it didn’t, and that’s the issue with it,” Diller said.
Diller is chairperson of both online travel company Expedia and IAC, which owns media platforms and websites like Dotdash Meredith and Care.com. He and Bezos appear to have been close friends for years, with Diller and his wife, fashion designer Diane von Furstenberg, hosting Bezos’s engagement party to fiancee Lauren Sanchez.
The decision not to endorse a presidential candidate in the 2024 race or for future presidential races came directly from Bezos, the paper’s owner, according to an article published by two of the Post’s own reporters.
The move prompted public condemnation from several staff writers, a flood of at least 250,000 digital subscription cancellations and the resignations of at least three editorial board members.
Bezos defended his position in his own op-ed late last month, calling the move a “meaningful step in the right direction” to restore low public trust in media and journalism.
“Presidential endorsements do nothing to tip the scales of an election,” Bezos wrote, emphasizing that the decision to not endorse a candidate was made “entirely internally” and without consulting either campaign. “I wish we had made the change earlier than we did, in a moment further from the election and the emotions around it.”
Diller said he spoke to Bezos following the decision.
“I think it was absolutely principled,” Diller said. “The mistake they made — and it was a mistake admitted by him — was timing.”
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