3 Big Winners in Tech’s Merger Mania – MS, JPM, GS

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Facebook’s (FB) acquisition of WhatsApp for $16 billion is either pure genius or absolute insanity. Whatever the future holds for this deal, the stunning price paid for a private technology company – about double the price Google had recently offered for WhatsApp – kicks off dot-com re-dux.

Facebook is betting 10% of its (one could argue) already-inflated market cap on an unproven company. Well, unproven from a profitability standpoint.

What WhatsApp has proven is an ability to capture eyeballs.

Oh no. Remember the term “eyeballs” from the heady days of the first dot-com bubble, when all that mattered was visitors to your website?

Never mind profitability. The mantra is “spend whatever it takes” to get the eyeballs . . . and in the process destroy any hope of making a profit – ever.

Just like the first dot-com bubble, this one too shall collapse. Along the way, though, there are some likely beneficiaries of the new technology bubble emerging. Of course, I am referring to Wall Street.

The Facebook – WhatsApp merger will generate close to $100 million in fees for advisers representing both companies.

The day before the deal was announced, Ernst & Young issued a report that said 2014 is going to be a strong year for M&A in technology, at worst. At best, it could be a blockbuster year.

The arms race appears to be on. If Facebook’s move is any indication, it looks more likely to be a blockbuster. Whether these deals pan out or not, the advisers are going to be laughing all the way to the bank.

Here are three companies that will benefit from the new tech mania:

Morgan Stanley

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Morgan Stanley

Morgan Stanley (MS) will be the sure winner in the Facebook – WhatsApp acquisition. The company advised Facebook on its initial public offering. In this deal, they represent WhatsApp. Potential conflict of interest issues aside, Morgan will pocket an estimated $35 million to $45 million. That’s a hefty payday for what I can imagine was a difficult engagement – not! How hard can it be to advise a company when the suitor is acting insanely? That fee is pure profit for Morgan Stanley.

Interestingly, Morgan Stanley shares are down more than 5% so far in 2014. Clearly the stock has yet to price in what is likely to be a monster year for technology M&A, irrespective of how it all ends down the road.

Goldman Sachs

Goldman SachsWhen one thinks of mergers and acquisitions, Goldman Sachs (GS)  has to be near the top of the list of bankers poised to benefit from an explosion of technology deals. Thus far, 2014 has been a dud for Goldman, but look for that to change as the year progresses.

So far, the biggest deal adviser in the business for nine of the past 10 years has been notably absent from this year’s biggest deals. At the moment, Goldman is ranked ninth on the deal table, but all it takes is one big transaction to change the rankings.

Goldman typically starts out the year slowly and this year is no different. With its long roster of clients and position as the top deal company in prior years, look for fees to explode if 2014 turns out to be a boom year for technology-based mergers and acquisitions. The time to buy Goldman stock is before that happens.

JPMorgan Chase

JPMorgan NYSE:JPM JPM stockOne of the biggest technology deals is in the cable industry: Comcast’s (CMCSA) $45.2 billion  bid to buy Time Warner Cable (TWC). If approved by regulators, that deal alone is estimated to generate nearly $150 million in fees for the advisers, including JPMorgan Chase (JPM).

Shares of JP Morgan have been depressed thanks to headline issues with respect to the financial crisis and related fines. Now would be time to jump on board as technology-related mergers and acquisition fees alone are likely to be a big windfall for the company. Thus far, the market has yet to price in a boom in transactions, making JP Morgan an attractive investment opportunity today.

Written by Jamie Dlugosch


Article printed from InvestorPlace Media, https://investorplace.com/2014/02/tech-fb-financial-stocks-jpm-gs-ms/.

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