Stephen Lam/Reuters; Kimberley White/Getty Images
- Big tech mergers usually happen during economic downturns, when valuations are low and there is less competitive pressure in a down market.
- We asked experts to speculate on 15 possible big tech merger scenarios in the coronavirus downturn, featuring behemoths led by Google, Microsoft and Facebook.
- Some of those deals would be unlikely, if only because of their size: Google could buy Salesforce, or Amazon could gobble up Oracle, the experts speculate.
- Others see the return of long-running rumors, like Apple buying Tesla or Microsoft buying Adobe.
- Click here for more BI Prime stories.
Big tech mergers happen when times are bad.
It makes perfect sense for several reasons. In a recession, companies are generally cheaper to buy - and might get cheaper still if the company in question hit dire straits amid the broader downturn, forcing it to look for an exit. Down markets also take off some of the pressure to compete, since there are fewer customers overall to fight over.
Any kind of shopping spree won't happen any time soon, since "valuations are fluctuating so wildly," as the stock market goes on a rollercoaster, said Robert Siegel, a management lecturer at the Stanford Graduate School of Business and a veteran venture capital investor. But it does seem likely that some kind of consolidation is coming.
"When we get on the other side of this crisis, those with cash and stock as a currency will have a buyer's market," he told Business Insider. That's when companies "with low stock prices and poor fundamentals" become "targets for the healthy."
Many of the deals will likely be fire sales involving small firms, including startups. But downturns are also when tech behemoths gobble up other big players, including rivals.
We saw after the Great Recession a decade ago when Microsoft bought Nokia, and tried - and failed - to buy Yahoo. That was also when Oracle bought Sun Microsystems. After an earlier crash, shortly after the dot-com crash, Oracle launched a hostile takeover of PeopleSoft, which it eventually acquired in 2005.
In fact, big M&A moves can be a sign that a downturn is over, said JMP Securities analyst Patrick Walravens.
"For the software industry, I would say the signal that we have hit the bottom is when big companies and private equity firms start snapping up the good companies," he told Business Insider.
He cited Salesforce buying Demandbase, Microsoft buying Linkedin and Oracle buying NetSuite as surefire signs that the Great Recession was well over.
Sometimes, buyers don't even wait for the downturn to hit bottom. The tech market was collapsing in 2001 when Hewlett-Packard stunned the tech world by announcing that it was buying computer giant Compaq.
"A global economic downturn and a tech recession is precisely the time to do a merger like this one," then HP CEO Carly Fiorina said then. "It gives us time to complete the heavy lifting required in the months ahead so that we can indeed emerge a stronger competitor when the economy does turn around."
That will likely be the game plan for the new megamergers in the post-coronavirus downturn.
"It's a good time to kind of take out competitors and even to go shopping in adjacent areas where maybe you're not there, but you'd like to be there," analyst Roger Kay of Endpoint Technologies Associates told Business Insider.
Analyst Ray Wang of Constellation Research said the likely buyers would be the tech giants with "lots of free cash flow, $50 billion to more than $100 sitting around." In tech, these would include Microsoft, Google, Apple, Amazon, Facebook, Oracle and Cisco. Steve Allen of S2C Partners echoed this view. "Cash is now king," he told Business Insider.
Siegel said the big M&A moves will probably not happen in the next 90 to 180 days. "Everyone is in crisis mode," he said. "There's so much volatility right now that everyone's job Number One is struggle for survival ."
We talked to several experts who speculated on the top 15 possible big tech mergers in the new downturn:
Do you have a personal experience with the coronavirus you'd like to share? Or a tip on how your town or community is handling the pandemic? Please email covidtips@businessinsider.com and tell us your story.
And get the latest coronavirus analysis and research from Business Insider Intelligence on how COVID-19 is impacting businesses.