Big Tech's Buying Binge: Who Will Be Acquired Next?

Peter Cohan
Updated
Big Tech's Buying Binge: Who Will Be Acquired Next?
Big Tech's Buying Binge: Who Will Be Acquired Next?

The four horsemen of big tech -- IBM (IBM), Oracle (ORCL), Hewlett Packard (HPQ) and Intel (INTC) -- have been on a buying spree of late, and it's virtually guaranteed that they'll be purchasing more companies over the next several months. Behind the acquisition binge are three forces: the availability of the cash and stock needed to pay for the deals, relatively low valuations and the inability to grow through innovation.

Among the four of them, these acquirers have a total of $64.8 billion in cash and short-term investments and market capitalizations totaling $493.2 billion. And that doesn't even take into account their debt-carrying ability.

So what might these big spenders be snapping up next? Lately, they've been concentrating on four hot areas, and they don't appear to be done with any of them.

  • Security software is a $1.4 billion market for software and devices growing at 7% annually that protects computers and networks from attack.

  • Cloud computing is a $12.1 billion market for computer services growing at 43% annually that lets organizations turn their computing applications into variable costs that get updated and maintained by a third-party.

  • Virtualization is a $2.7 billion market for software growing at 20% annually that allows organizations to get more storage capability out of less hardware.

  • Data analytics is an $8.1 billion market for software growing at 7% annually that allows organizations to make sense of the mountains of data they generate to help them better understand their customers.

Here are eight companies in those areas that are good candidates to be acquired -- and three of them look like strong buys right now even if they stay independent.

Security Software

  • Checkpoint Software (CHKP) has $1 billion in sales, $402 million in net income and a market capitalization of $7.4 billion. The stock is up 26% over the past year and trades at a P/E of 18.6 on earnings growth of 9.7% by 2011. At its Price/Earnings to Growth (PEG) ratio of 1.9, it's expensive.

  • Fortinet (FTNT) has $283 million in sales, $63 million in net income and a market capitalization of $1.8 billion. The stock is up 46% in the last six months and trades at a P/E of 21.8 on earnings growth of 25% by 2011. At its PEG ratio of 0.87, it's fairly inexpensive.

  • Symantec (SYMC) has $6 billion in sales, $802 million in net income and a market capitalization of $11.9 billion. The stock is down 3.6% in the last year and trades at a P/E of 15.4 on earnings growth of 19.5% by 2011. At its PEG ratio of 0.79, it's inexpensive.

Cloud Computing

  • Teradata (TDC) has $1.8 billion in sales, $254 million in net income and a market capitalization of $6.2 billion. The stock is up 40% in the last year and trades at a P/E of 22 on earnings growth of 15.6% by 2011. At its PEG ratio of 1.4, it is fairly expensive.

  • Compellent Technologies (CML) has $137 million in sales, $2.6 million in net income and a market capitalization of $573 million. The stock is up 9.9% in the last year and trades at a P/E of 224. It's not growing very fast, so buying this stock makes sense only if you think it will be taken over for a premium.

  • Isillon Systems (ISLN) has $152 million in sales, but had net losses of $2 million and a market capitalization of $1.7 billion. The share price is up 285% in the last year, but buying this stock makes sense only if you think it will be taken over for a premium.

Data Analytics

  • MicroStrategy (MSTR) has $411 million in sales, $60 million in net income and a market capitalization of $992 million. The stock is up 29% in the last year and trades at a P/E of 17.6 on earnings growth of 25% by 2011. At its PEG ratio of 0.7, it's inexpensive.

Virtualization

  • Quest Software (QSFT) has $773 million in sales, $73 million in net income in net income and a market capitalization of $2.2 billion. The stock is up 37% in the last year and trades at a P/E of 30 on earnings growth of 15% by 2011. At its PEG ratio of 2, it's expensive.

Of these eight, three look like they would be good investments even if they aren't acquired because of their relatively low valuations relative to earnings: MicroStrategy, Symantec and Fortinet.

Happy hunting!

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