Beaten-Down Tech Stocks Top List of New M&A Targets in Europe.
Atos, Vivendi, emerge as new top takeover targets in Europe
Public to private transactions slump amid tight debt market
Interest-rate sensitive technology stocks have become much less expensive following the past year’s selloff, marking the sector out as one to watch when it comes to dealmaking in 2023.
Companies including Atos SE, Darktrace Plc, Temenos AG and Deliveroo Plc were mentioned multiple times as potential takeover targets in an informal Bloomberg survey of 21 event-driven desks, fund managers and analysts conducted last month.
A common theme between the above-named is that all saw their share prices plummet last year, topped by Atos’s 76% plunge. Lower valuations are increasing the sector’s attractions among potential bidders at a time when mergers & acquisition activity has been falling in Europe and could use a boost.
“When you factor in that European growth valuations are moving back to pre-Covid levels, the companies become increasingly more attractive,” Mirabaud Securities analyst William Mileham said by email.
Technology wasn’t immune to declining M&A activity last year. The value of deals involving such companies in Europe fell 40% to $245 billion, according to data compiled by Bloomberg. That was a slightly steeper decline than total dealmaking in the region, which remained above historical averages, the data show.
Buyers have been deterred by rising interest rates, a selloff in growth assets, a grim economic picture and runaway inflation, while tight debt markets restricted public to private transactions with deals worth tens of billions of dollars falling apart.
According to Goodbody analyst George O’Connor, increasing clouds over the economy will cause trade and private equity buyers to guard their cash and re-invest in their existing portfolios this year. Yet while that may imply a pause in M&A, “there will be more willing sellers to help push deals through” in addition to lower asking prices.
Companies with the most mentions in the survey are a mix of the old and the new. Perennials such as luxury-goods firm Burberry Group Plc, gambling operator Entain Plc and banking-software specialist Temenos remain near the top of the list, while Atos and media company Vivendi SE are among those featuring higher than they did in the past.
Vivendi’s rising position reflects speculation that billionaire Vincent Bollore will seek to increase his 29% stake after closing the 5.7 billion-euro ($6 billion) sale of his group’s African ports business to MSC, the world’s second-biggest container line. Doing so would likely take him beyond the 30% threshold for a mandatory offer.
“It seems clear that Bollore’s war chest is to be reinvested in the media and entertainment space,” said Kepler Cheuvreux risk arbitrage analyst Geoffroy Le Guyader. Should a bid for Vivendi materialize, “we could see a 20% to 25% upside to the current stock price,” he said in written comments.
Speculation around Atos has risen since a disagreement between executives on how to revive the French technology company led to the departure of Chief Executive Officer Rodolphe Belmer. The stock soared about 25% in the first three trading days of 2023 after a report in the French press said the company was in preliminary talks with Airbus SE about the sale of a minority stake in its Evidian cybersecurity business.
According to Citigroup Inc. analyst Amit Harchandani, it’s no surprise that both Atos and Temenos are screening as potential M&A targets given the “company-specific operational & execution challenges that have contributed towards the share prices of both firms more than halving over the past year.”
Representatives for the six companies with most mentions in the survey either declined to comment or didn’t respond to requests for comment.
— With assistance by Henry Ren