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Amazon Joins Deal Revival Spurred by Lower Valuation: Tech Watch

·5 min read

(Bloomberg) -- There’s no relaxing on the beach this summer for corporate acquirers -- they’ve been busy snapping up technology companies, even after a stock rally over the past two months means the sector isn’t as cheap as it was back in June.

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Just look at Amazon.com Inc. The retail and cloud-storage giant announced a $3.49 billion deal to buy software company 1Life Healthcare Inc. last month, and last week it said it would pay $1.65 billion for iRobot Corp., maker of the Roomba vacuum.

Just 10 days into August, about $13.4 billion of tech-related mergers and acquisitions have been unveiled in North America, according to Bloomberg data, which already would make it the busiest month since May. In the largest deal, buyout firm Vista Equity Partners agreed to buy tax software provider Avalara Inc. for $8.4 billion including debt.

“August has historically been a quiet month for M&A, so it is surprising to see such a flurry of deals,” said Larry Feldman, a research analyst at United First Partners. Dealmaking may be getting a boost from improved market conditions for debt financing, he said.

And the sector still is cheaper than at the height of the roaring bull market early this year. The Nasdaq 100 Index is priced at 22 times estimated earnings now, down from a recent peak of 31 in September 2020, even if it is up from the June low of 18.6.

Amazon’s targets certainly aren’t selling at the peak: iRobot fell 77% from its high of $161.16 last year through last month as it struggled with supply-chain issues. Similarly, One Medical’s stock hit a record low of about $6 in May from 2021’s all-time high near $60, before agreeing to sell at $18.

There are some headwinds deterring the biggest companies from massive acquisitions: They face stepped-up antitrust scrutiny in the US, which has some traders skeptical that recent marquee deals -- such as Microsoft Corp.’s $69 billion purchase of Activision Blizzard Inc. -- will go through. Activision’s shares are still trading about 15% below the offer price.

And Apple Inc., which used to acquire a company every three or four weeks, has dramatically slowed its dealmaking in the past two years.

Still, big companies and buyout firms are flush with cash, and plenty of smaller tech companies are looking at a slowing economy and tougher business environment in the near future.

“So this is a good time for them to get off the merry-go-around,” said Tim Pagliara, chief investment officer at CapWealth, a wealth management firm in Franklin, Tennessee.

Tech Chart of the Day

S&P 500 companies have cut cash holdings by 12% from a year earlier, according to data compiled by Bloomberg. Amazon is leading the pack with a $29 billion cut to its cash pile, following by fellow mega-caps Microsoft Corp., Meta Platforms Inc. and Apple Inc. Apple, Microsoft and Meta have used cash to fund their share repurchase programs, while Amazon has the biggest capital expenditure budget in the group.

Top Tech Stories

  • Elon Musk offloaded $6.9 billion of stock in Tesla Inc., the billionaire’s biggest sale on record, saying he wanted to avoid a last-minute selloff of the electric-car maker’s shares in the event he is forced to go ahead with his aborted deal to buy Twitter Inc.

  • Roblox Corp., a video-game platform aimed at preteens and teenagers, reported bookings that missed analysts’ estimates, becoming the latest gaming company to deliver disappointing results amid a post-pandemic industrywide slump.

  • Semiconductors stocks tumbled after Micron Technology Inc. warned of slowing demand, adding to concern the industry is heading into a painful downturn.

    • Micron Technology Inc. plans to slow hiring as it copes with a sudden drop in chip demand, but the company joined peers such as Intel Corp.and Nvidia Corp. in deciding that major job cuts aren’t yet necessary.

    • President Joe Biden signed into law a broad competition bill Tuesday that includes about $52 billion to boost domestic semiconductor research and development, calling it a “once-in-a-generation investment in America itself.”

  • Lenovo Group Ltd.’s profit jumped a better-than-projected 11% after the world’s largest maker of personal computers relied on businesses beyond PCs to counter a worsening slump in global electronics demand.

  • Hon Hai Precision Industry Co., the maker of most of the world’s iPhones, posted a profit that beat estimates as demand for its cloud products helped it weather supply-chain snarls and sluggish smartphone demand.

  • Taiwan wants to force Foxconn Technology Group to unwind an $800 million investment in Chinese chipmaker Tsinghua Unigroup, the Financial Times reported, citing unidentified people familiar with the matter.

  • A Nebraska woman was charged with two felonies related to an illegal abortion after authorities discovered information about the pregnancy through private messages on Facebook Messenger, according to court documents. The case renewed debate about how law enforcement may use social media accounts in cases involving reproductive choices.

  • Market Kurly became South Korea’s first billion-dollar online grocery app by delivering fresh produce to customers’ doorsteps by dawn the next day. Now it’s expanding to Singapore by offering products on Alibaba Group Holding Ltd.’s RedMart.

  • Telexistence Inc. and FamilyMart Co. are rolling out a fleet of AI-driven robots to restock shelves in 300 convenience stores across Japan.

  • Deliveroo Plc’s loss widened less than analysts had estimated after the company generated sales from its new ad platform and increased average customer fees.

(Adds deal spread in seventh paragraph)

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