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Activist investors are strategically targeting the technology sector as signs of a rebound in mergers and acquisitions (M&A) activity emerge after a two-year decline. With optimism about a renewed wave of deals in 2024, activists are eyeing tech companies, aiming to capitalize on potential sales at higher valuations.
The resurgence in M&A activity follows a significant dip in tech, media, and telecom deal volume, which peaked at $856 billion in 2021 before dropping to $565 billion in 2022 and further plummeting to $255 billion in the previous year. During this period, companies shifted focus from acquisitions to cost-cutting measures, including mass layoffs, as they acknowledged overhiring during the Covid-19 boom.
While layoffs have increased, activists believe that the pressure behind the scenes is driving these cost-cutting initiatives. Activists often contend that founder-led companies may not be running efficiently, and there is a push for operational improvements, leading to potential sales or breakups.
Recent M&A announcements in January signal a potential shift, with Synopsys acquiring Ansys for about $35 billion, Hewlett Packard Enterprise purchasing Juniper Networks for around $14 billion, and Roper buying Procare Solutions for $1.75 billion. Activists have played a role in influencing M&A decisions, as seen in the case of Starboard Value’s stake in Splunk, where Cisco eventually announced a $28 billion acquisition.
The increased interest in M&A is also linked to the introduction of the universal proxy card by the SEC in 2022. This card lists all director nominees, both from management and shareholders, on one card, streamlining the proxy voting process. While the impact of this rule has been limited so far, signs indicate that it could lead to more contested board elections. Some proxy fights are reportedly “in the pipeline,” reflecting potential battles for board control.
As the tech industry navigates a changing landscape, longer-term activist shareholders are expected to advocate for sales or breakups, making the tech sector a focal point for activist campaigns in the coming months.