5 Stocks That Could Surge On News Of A Buyout Offer

by: Dividend Kings

International Business Machines (NYSE:IBM) this month agreed to acquire DemandTec for $440 million. The company’s products analyse data to help retailers decide how much to charge for their merchandise. This type of data analysis expertise is typical in the Business Intelligence (BI) sector, where a string of acquisitions has been announced this year. More are to be expected as in the technology sector, buying another company seems easier than growing organically.

Before its latest acquisition, IBM bought i2Technologies, a private British supply chain management software company, for an undisclosed sum, as well as Algorithmics, a Canadian risk management analytics software developer, for $387 million. IBM had $11.3 billion in cash on its balance sheet as of the end of the third quarter, so it could easily afford additional acquisitions.

IBM’s rival Hewlett-Packard (NYSE:HPQ) recently completed its much larger and rather controversial $10.5 billion acquisition of U.K. infrastructure software company Autonomy. Before that, HP bought privately held Vertica, which offers a real-time analytics platform. HP had almost $13 billion in cash at the end of July 2011, which should allow it to pursue other takeover targets in the business analysis software sector.

SAP AG (NYSE:SAP)’s acquisition of workforce-management and performance software developer SuccessFactors (NYSE:SFSF) was also quite big at $3.4 billion. The $6.7 billion in cash on SAP’s balance sheet in 3Q11 allow it to make this kind of deal. The SuccessFactors (SFSF) acquisition enhances SAP’s status as a provider of cloud applications, platforms and infrastructure. The SuccessFactors deal as well as Salesforce.com (NYSE:CRM)’s recent announcement of the purchase of Rypple, a private Canadian start-up in the HR software business, point to a continued consolidation in the Human Capital Management space.

The move by SAP to expand its cloud presence comes on the heels of a similar move by Oracle (NYSE:ORCL), which purchased RightNow Technologies (NASDAQ:RNOW) in October for $1.4 billion. That deal came on the back of smaller acquisitions of private companies by Oracle during the year. They include Endeca Software, an information access software company, and Datanomic, a specialist in data profiling for compliance and auditing purposes. With $31.7 billion in cash and short-term investments as of the end of the third quarter, Oracle is well-placed to continue on the acquisition trail.

Oracle and its archrival SAP have competed over BI companies in the past, for example Retek, a specialist in retailing software. In 2005, Retek, after having agreed to a merger with SAP for $496 million, ended up tying the knot with Oracle at a price of $631 million.

The fast growth and strong competition in the BI sector help to explain the high level of M&A activity. Consolidation allows the software competitors to accelerate upgrades and carry out faster migrations across installed bases. Although these acquisitions reduce the number of BI vendors, they do not necessarily result in the elimination of products, as often both product lines live on separately in the merged company.

Due the possibilities offered by cloud computing, Business Intelligence companies are not only attractive for major software vendors looking to expand their enterprise software solutions, but also for data warehousing firms such as Teradata (NYSE:TDC). It acquired big data analytics provider Aster Data for $263 million in March of this year.

Looking forward, the following Business Intelligence firms could be prime takeover candidates:

MicroStrategy (NASDAQ:MSTR): Microstrategy is a BI software specialist with a market cap of $1.15 billion and trailing-twelve-month revenue of $541 million. MicroStrategy has entered the cloud-based Business Intelligence market aggressively, which has earned it y-o-y quarterly revenue growth of 23.70% and makes it a prized acquisition target. HP might be a bidder as MicroStrategy has had a partnership with HP for over ten years and has a solution set that is optimized for HP’s technology. Another potential acquirer is data storage firm EMC (EMC), a Teradata rival. Acquiring MicroStrategy would create closer integration and cross-selling opportunities for EMC's infrastructure technologies.

Salesforce.com (CRM): Salesforce.com provides customer and collaboration relationship management (CRM) services. It also offers a cloud computing platform for customers and developers to build and run complementary business applications, which could be of use to one of the large-cap technology companies such as IBM or Oracle wanting to advance their cloud presence. Salesforce.com’s $14.51 billion market cap limits the number of potential suitors. The company has $2.09 billion in ttm revenue and yoy quarterly revenue growth of 36.20%.

Taleo Corp. (NASDAQ:TLEO): is a $1.62 billion market cap company with $297.84 million ttm revenue. Its on-demand talent management software solutions are in direct competition with those of SuccessFactors. Any company buying Taleo would instantly have a solid position in the Human Resources cloud computing field. Taleo might be a target for Oracle: Taleo’s year-on-year quarterly revenue growth of 41.20% could boost that of Oracle, which is at 11.60%.

Tibco Software (NASDAQ:TIBX): Tibco Software provides middleware and infrastructure software. It offers its products in the areas of service-oriented architecture, business optimization, and business process management. Tibco’s enterprise-grade integration software is being used by big financial institutions, airlines, and energy and utility companies. It recently unveiled new software designed to help users provision their data across public, private and hybrid clouds. Tibco could be a good fit for its biggest competitors IBM or Oracle. Last spring, Tibco was rumored to be in (inconclusive) takeover talks with HP, for whom it has been a software partner for over a decade.Tibco has a market cap of $3.8 billion, ttm revenue $871.95 million, and yoy quarterly revenue growth of 24.10%.

Qlik Technologies (NASDAQ:QLIK): Qlik Technologies is an enterprise software developer of products that deliver data analysis and reporting solutions. A direct competitor of MicroStrategy, Qlik is also a cloud-enabler. It has seen very fast revenue growth, at a y-o-y quarterly rate of 50.20%. It has a trailing-twelve-month revenue of $293.92 million for an equity value of $2.25 billion. Qlik could be attractive to EMC but also to the major software vendors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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