The stock was used in six of the largest technology deals in 2020, with semiconductor maker Advanced Micro Devices Inc.’s $ 35 billion acquisition of Billinx Inc. and Salesforce.com’s agreement to buy messaging app Slack Technologies Inc. for $ 27.7 billion.
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Cash may be king, but stock is the queen in a land of technology mergers and acquisitions during an epidemic-fueled tech boom.
According to financial data provider Refinitive, close to half of US deals in the sector last year were considering stock in 2016, the highest percentage since 2016, at only 27% in 2019.
In comparison, 39.5% of deals across all sectors used the stock last year. The technical trend continued in 2021, with half of the shares used in the stock announced in the first quarter.
The company has more frequently funded mega deals in stock. The stock was used in six of the largest technology deals in 2020, with semiconductor manufacturer Advanced Micro Devices Inc.’s $ 35 billion acquisition of Billinx Inc. and Salesforce.com’s agreement to buy messaging app Slack Technologies Inc. for $ 27.7 billion.
Dealers said that the stock’s popularity as a currency for deals is increasing in the region. The NASDAQ 100 index is trading at 39.5 times its price-to-earnings, the highest since 2000, as investors place bets on firms benefiting from the expansion into cloud computing and remote work in the post-COVID-19 epidemic.
This has made acquirers to use their highly valued shares instead of cash, paying a bogus premium demanding for the target. Although an all-stock or cash-and-stock deal may dilute the acquirer’s shareholders through the issuance of new shares, it reduces its risk because it relies more on the relative valuation of the two companies. Is, rather than evaluating the absolute target, investment bankers said.
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M&A, global head of Morgan Stanley, said, “It allows buyers and sellers to participate equally on the upside or downside, as they are given cash out.”
When identity management company Okta Inc. signed a $ 6.5 billion deal earlier this month for rival Auth0, it used its shares to fund the purchase. The deal is approximately 26 times the forward revenue multiple of Octa’s forward revenue multiple valuation of approximately 28 times revenue.
“Some people feel that the deal has sold more than authenticity, but it is actually lower than many of us,” Okta chief executive Todd McKinnon said in an interview.
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Share deals can also come with a tax benefit to the acquisition target. Deal proceeds are not taxable at the corporate level in the United States because the stock makes up at least 40% of the purchase price.
Dealing in the American technology sector has flourished during the epidemic. The first quarter of 2021 saw the highest ever tech deal volume, with a total of $ 700 billion worth of deals announced. Tech transaction volume grew 72% to $ 383 billion in 2020, refinitive data show.
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