IBM Eyes Fortinet in Another Big Tech Buys Little Tech Deal
Bloomberg reports that IBM (IBM) is in advanced talks to acquire Fortinet (FTNT). That's shouldn't be a big surprise to DailyFinance readers. After all, in September, I wrote here that Fortinet would be a likely takoever target, though I didn't predict IBM would the buyer. Still, this deal reinforces the trend I discussed back then: Big tech companies have plenty of cash and can get access to financing at low rates. But they can't seem to grow fast enough from internally developed products. So they'll acquire smaller companies.
What's the attraction of Fortinet? It's growing quickly and offers products to both small businesses and large phone carriers that keep networks secure. Since going public a year ago, Fortinet's profit almost doubled to $14 million in the third quarter, and its sales rose 29% to $85 million. Fortinet had a market value of $2.14 billion, according to Bloomberg. It's stock is currently trading around $36, up sharply by nearly 20% in morning trading today.
IBM has spent $20 billion on 100 acquisitions since CEO Sam Palmisano took over in 2002, according to Bloomberg, and the company plans another $20 billion more by 2015, "adding tools to deliver cloud-computing services via the Internet, as well as software that helps customers analyze data."
What About Oracle-EMC?
The reasons for IBM's move are along the lines I wrote about in September. My view is that IBM, Oracle (ORCL), Cisco Systems (CSCO), Hewlett-Packard (HPQ), Dell (DELL) and Microsoft (MSFT) are among the big tech companies likely to use their huge cash balances and access to extremely low-rate debt to vacuum up smaller firms that are growing more rapidly than they are.
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Last month I analyzed a possible deal between Oracle and EMC (EMC) after I had assigned my B-school students to assess the wisdom of a deal. (On Oct. 15, rumors of such an agreement leaked to the media.) I think this merger could make sense if Oracle spins off EMC's hardware and keeps its VMWare (VMW) software unit, which is a better fit with Oracle because it's primarily a software company.
Of the possible acquisition targets that I listed in September, Check Point Software Technologies (CHKP) looks like the next one to be bought. It's a leader in network security systems, had $1.1 billion in sales in the last year and made a profit of $425 million. Its market capitalization is $8.9 billion, and my guess is that its board would agree to sell it for a 25% premium -- at about $54 a share.
Even though Check Point's stock is up 26% in the last three months, it may not be too late to buy it.
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