M&A Watch: 3 Tech Stocks With ‘Takeover Target’ Potential


  • Companies could have their eyes on these three tech companies for an M&A. 
  • Extreme Networks (EXTR): EXTR is likely to get a big boost from the proliferation of AI.
  • Roku (ROKU): ROKU would be a tremendous asset for struggling media companies.
  • Five9 (FIVN): FIVN has multiple positive catalysts.
takeover targets - M&A Watch: 3 Tech Stocks With ‘Takeover Target’ Potential

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With even the Federal Reserve’s hawks like John Williams indicating that the central bank is done raising rates for the foreseeable future, the outlook for rates has become much more certain. As a result, companies are becoming more comfortable borrowing the funds needed to acquire other firms. Given the latter situation, I expect mergers and acquisitions (M&A) within the tech sector to take off tremendously this year. Indicating this phenomenon has already started, Hewlett-Packard Enterprises (NYSE:HPE) earlier this month announced it agreed to acquire telecom and data center equipment provider Juniper (NYSE:JNPR) for $40 per share. Before the deal was disclosed, JNPR stock was changing hands for around $30 per share. Now, it’s selling for about $37.51. Here are three other potential takeover targets in the tech sector that can generate much bigger profits for investors.

Extreme Networks (EXTR)

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Like Juniper, Extreme Networks (NASDAQ:EXTR) sells equipment to data centers. Among Extreme’s offerings are wide area-network infrastructure equipment and a cloud network management solution.

The proliferation of artificial intelligence (AI) is greatly increasing the utilization of data centers since the lion’s share of the data used by AI systems is stored there. What’s more, AI systems are usually created in data centers. Given these points, the demand for data center equipment should jump over the longer term, making EXTR one of the more attractive takeover targets in the tech sector.

Also noteworthy is that analysts, on average, expect the company’s earnings per share to climb to $1.24 in 2024 from $1.09 in 2023, while EXTR stock has a very attractive forward price-earnings ratio of 12.5.

Roku (ROKU)

The entrance sign at Roku San Jose campus. Roku produces a variety of digital media players that allow customers to access internet streamed video or audio services.
Source: Tada Images / Shutterstock.com

I’ve long believed that Roku (NASDAQ:ROKU), with its sizable captive streaming audience, would make one of the best takeover targets for a struggling media company.

With cord-cutting having greatly weakened the cable ecosystem and multiple media firms struggling to compete against Netflix (NASDAQ:NFLX) in the streaming space, a takeover of Roku has become more attractive than ever for many media players.

For example, Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) could both advertise their streaming offerings and other products frequently on Roku if they decide to buy the streaming operating system provider. With Apple and Disney struggling to generate strong growth, I believe they may finally shell out the large amount of funds needed to buy Roku.

Indeed, the one drawback to acquiring Roku is the buyer would probably have to pay at least $25 billion to get the deal done. Still, besides Apple and Disney, Amazon (NASDAQ:AMZN) and Comcast (NASDAQ:CMCSA) could afford that price relatively easily.

Five9 (FIVN)

photo illustration of the Five9 logo seen displayed on a smartphone
Source: rafapress / Shutterstock.com

Five9 (NASDAQ:FIVN) is well-positioned to benefit from the incorporation of AI into its customer-contact products.

After meeting with the firm’s management in November, investment bank Piper Sandler (NYSE:PIPR) wrote that Five9 could get a big boost from selling its AI-enabled products to large companies. Additionally, Piper believes the firm, over the longer term, can benefit from “tech and channel partnerships” along with acquiring important security certification from the federal government.

These growth catalysts likely caused Zoom Video (NASDAQ:ZM) to attempt buying the company recently. ZM ultimately backed out, but other firms could easily look to buy Five9.

FIVN stock has an attractive forward price-earnings ratio of 36, while analysts, on average, expect its earnings per share to jump to $1.93 this year from $1.50 in 2023.

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

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