Illustrating how much appetite there is for multibillion-dollar infotech combinations, February's two largest deal announcements were competing offers for the same company — imaging and optics firm Coherent Inc. And those came after the initial bid for the company marked the third-largest deal in January.
The January bid came from fiber optics vendor Lumentum Holdings Inc. and totaled $6.17 billion. Then manufacturing technology developer MKS Instruments Inc. delivered its own $6.44 billion bid on Feb. 8. Engineered materials company II-VI Inc., which focuses heavily on laser and optics technologies, took its own $7.06 billion shot Feb. 12, a bid that is reportedly backed by private equity giant Bain Capital LP.
The back-to-back offers for Coherent helped edge February's information technology M&A volume up 1% above February 2020, following a January that was up 27.4% year over year, and catapulting 2021 into potential record territory.
However, it is difficult to say how long the M&A boom will continue.
On the bullish side, a recent 451 Research survey revealed confidence among tech and telecom investment bankers that 2021 M&A activity will be clear of any COVID-19 impacts. Roughly 63% expect little to no impact from the global pandemic. Second, financial buyers like private equity firms seem to be continuing their buying spree after accounting for a record 34% of tech and telecom deals in 2020, adding to the buyer pool alongside publicly traded companies. Also, with corporate distress levels at a two-year low, according to LCD data, and pandemic trends forcing tech spending across industries, there is both "the will and the means to do deals," as 451 Research analyst Brenon Daly put it.
Both LCD and 451 Research are offerings of S&P Global Market Intelligence.
On the other hand, record M&A spending years are typically followed by sharp declines. Further, unprecedented and largely unexpected equity market gains from 2020 could be showing signs of stress. Both the S&P 500 broad market index and the S&P BMI U.S. Information Technology index notched losses for the month ending March 5, down 1.2% and 6.0%, respectively.
But one company that did not mark a monthly stock-price loss was Coherent, buoyed by its bidding war. That company has seen its shares jump 21.7% over the month ended March 5.
Advisers from Bank of America Corp. are sharpening their pencils as more interested parties make advances at their client Coherent, with a unit from that bank listed on each potential transaction. The three offers and the potential transaction represent the first time Coherent has worked with Bank of America advisors, according to S&P Global Market Intelligence data. For its bid, II-VI is consulting with advisers from Allen & Co. LLC and JPMorgan Chase & Co. MKS has signed on with advisers from Barclays PLC and Lazard Ltd. For its initial offer, Lumentum is working with Deutsche Bank AG advisers. Fee agreements were not disclosed among any of the parties.
While a much smaller transaction, the second-largest deal of February was arguably higher profile, underscoring legacy ride-share company Uber Technologies Inc.'s pandemic-era strategy to focus on deliveries rather than car services. The company on Feb. 2 announced the $1.1 billion acquisition of alcohol-delivery company Drizly Inc. to add booze to its growing portfolio of Uber Eats doorstep services.
The Uber Eats app now provides users the option to bundle several pickups in a single delivery, beyond just restaurants, and Drizly will add alcohol to the mix. The deliveries market is growing, 451 Research analyst Jordan McKee said in a note on the deal, and it could drive other store-to-door-app makers like Bringg Delivery Technologies Ltd., Delivery.com LLC or Roadie Inc. to the deal table as potential targets.
No financial advisers were announced on the Uber-Drizly deal.