Analysts believe big tech deal will lead to more, with high valuations
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Microsoft Corp.’s $26.2 billion all-cash deal for LinkedIn Corp. might inspire other social-media acquisitions, notably Twitter Inc., and could raise deal valuations, according to analysts.
With Microsoft’s MSFT, -0.62% LinkedIn LNKD, -0.30% deal coming in as the sixth largest tech-sector deal in history, according to Dealogic, some say it might inspire other acquisitions in the industry. Saxo Bank’s head of equity, Peter Garnry, is betting that Alphabet Inc. GOOG, -0.01% GOOGL, +0.19% will buy Twitter TWTR, +5.57% by the end of this year.
“It is difficult long-term to see Twitter as a standalone company,” he said. “We are betting more now that this will be an acquisition before the year-end.”
Google might be interested in Twitter’s base of 300 million users to give it a stronghold in the social media space after failing against Facebook Inc. FB, +0.87% with Google Plus, Garnry said.
Shares of Twitter have risen about 7% since the deal with LinkedIn was announced Monday morning, though they’re still off 13% in the last three months and 58% for the year.
While the LinkedIn deal isn’t likely a strict social media play by Microsoft, according to Rob Enderle, principal analyst at tech consulting company Enderle Group, it still might inspire other companies already interested in social networks to make similar deals, possibly at higher valuations, he said.
“Twitter is the next target and this could be just a start for new tech boom,” said Naeem Aslam, chief market analyst at Think Forex.
Also See: 5 potential takeovers following Microsoft-LinkedIn deal
The LinkedIn deal is the biggest technology acquisition so far this year in what has otherwise been a slower year for tech M&A than 2015. So far this year, 4,081 M&A deals have been struck, versus 4,456 at the same time last year, according to Dealogic.
However, by valuation, 2016 is so far tracking ahead of 2015, with LinkedIn’s $26 billion buyout leading the sector, according to Dealogic. Tech deal values have reached $263.8 billion year-to-date, compared with $242.8 billion at this time last year, and some analysts say LinkedIn may bode well for other potential takeout targets, such as Twitter, GrubHub Inc. GRUB, -2.05% , GoDaddy Inc. GDDY, +0.89% and Yelp Inc. YELP, -0.41% .
“We don’t necessarily think transactions will increase materially, but rather help create a better valuation floor,” Monness Crespi Hardt analyst James Cakmak said.
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