By Jeff Reeves, MarketWatch
Even as investors have been dumping stocks, corporate America is eager to open its wallet.
Bristol-Myers Squibb /zigman2/quotes/202559280/composite BMY -1.17% last week ponied up $74 billion, a 54% premium, for biotechnology heavyweight Celgene. Big Pharma needs the next generation of treatments to fuel future growth. The deal came a few days after a rout in stocks that left the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.05% with the biggest calendar-year loss since 2008.
Another massive purchase was IBM’s /zigman2/quotes/203856914/composite IBM +2.28% $33 billion takeover of software firm Red Hat Inc. . The fact that Big Blue paid a premium of more than 60% in October, one of the worst months for stocks in recent memory, is proof that mega-cap technology companies aren’t afraid to shell out big bucks even amid talk of a tough stock market.
The specifics of those deals and how the target companies will be integrated are worth exploring. Big picture, they speak to an insatiable appetite for acquisitions in both the tech and biotech sectors.
Regardless of where the S&P 500 winds up at the end of 2019, one thing is certain: Those two sectors will see persistent buyout interest from deep-pocketed players looking to the long term.
Here are six potential takeover targets to ride this trend, with three in the tech sector and three in biotech and pharmaceuticals sector.
Three technology buyout targets
New Relic Inc. /zigman2/quotes/202610309/composite NEWR -0.45% delivered for shareholders from early 2016 through mid-2018, racing up from the low $20s to over $110 in a little over two years. The catalyst was 32% revenue growth in 2018 and 26% growth expected this year. The numbers aren’t just impressive on the top line, either, as NEWR has shown material profitability in 2018 after the cloud-based data-analytics firm operated largely at break-even in 2017.
Unfortunately, forward growth is about to get much harder to come by — and not just because investors have largely lost confidence in “risk-on” tech stocks lately. NEWR faces decent competition from peers such as Splunk /zigman2/quotes/203060494/composite SPLK +3.16% , which boasts roughly three times the market value and roughly four times the annual revenue, and a perpetual fear that integrated tech giants like Google parent Alphabet /zigman2/quotes/205453964/composite GOOG +2.04% /zigman2/quotes/202490156/composite GOOGL +1.34% , Microsoft /zigman2/quotes/207732364/composite MSFT -0.30% or Amazon.com /zigman2/quotes/210331248/composite AMZN +0.55% will eventually tighten the screws on any niche player.
But if you can’t beat ’em, join ’em! Alphabet has a long history of making billion-dollar buyouts to keep its dominant position in the ecosystem of internet stocks, and Microsoft is no slouch either. Both have deep pockets and will continue growing their cloud arms, and New Relic may make a compelling buy now that it’s proven itself. Plus, the company is digestible — its market value is about $5 billion.
CyberArk Software Ltd. /zigman2/quotes/206810080/composite CYBR -0.68% shares many of the same appeals of New Relic: It’s comparatively small at a $3 billion market cap, has an established growth trajectory that includes 26% revenue expansion in fiscal 2018 and solid profitability, and operates in a fast-growth arena of tech that the big boys are looking to dominate.
An added bonus is that, unlike some of the more hype-driven corners of tech, cybersecurity solutions are increasingly seen as necessities for businesses of all sizes. That provides a bit of countercyclical appeal for companies that are worried about enterprise spending drying up if times get tough in the coming year or two.
What makes CYBR particularly appealing is its expertise in fighting advanced cyber threats, and using a proactive approach to protect institutions and networks to ensure attacks do not escalate. The software company is a go-to solution for Fortune 100 companies and the world’s top banks as a result. And as a big vote of confidence at the end of 2018, tech firm Gartner named CyberArk a leader in its iconic magic quadrant analysis of “privileged access management” — what it called “one of the most critical security controls, particularly in today’s increasingly complex IT environment.”
Expertise in this specialized corner of cybersecurity makes CYBR an obvious target by larger enterprise technology providers. As proven via Cisco Systems /zigman2/quotes/209509471/composite CSCO -0.09% bidding $2.35 billion for Duo last year, deep-pocketed tech firms are eager to consolidate power in the security space by poaching attractive mid-sized firms like CyberArk to supplement operations.
Veeva Systems Inc. /zigman2/quotes/202850210/composite VEEV -0.99% exemplifies the high-growth potential of both tech and biotech. The cloud-computing company is focused on pharmaceutical and life sciences applications including unification of clinical trial data and quality control management processes to bring training and documentation practices into the 21st century.