Technology

5 Red-Hot Techs Stocks Private Equity May Be Looking to Buy Out

Lee Jackson

Published: May 22, 2017 10:00 am

Last Updated: January 12, 2020 11:48 am

Private equity firms are well armed with cash, and some on Wall Street think they may be close to a buying binge, especially where small and mid-cap tech firms are concerned. In fact, according to Preqin’s 2017 Global Private Equity & Venture Capital Report, private equity firms’ assets under management, encompassing funds focused on buyout, growth, venture capital, secondaries and related strategies, has ballooned to $2.49 trillion as of June 2016, more than doubling from the end of 2006.

A new research report from Oppenheimer makes the case that we could be in the midst of a big consolidation of small-mid cap telecom and cloud companies, and with debt still reasonably cheap, companies in the $500 million to $3 billion range are drawing the most interest.

The report lists several top companies in and out of the firm’s research coverage that could be solid targets. Their stocks are best suited for aggressive accounts with a high risk tolerance.

Akamai Technologies

This stock was hit hard recently when the company gave very disappointing guidance for the second quarter. Akamai Technologies Inc. (NASDAQ: AKAM) provides cloud services for delivering, optimizing and securing content and business applications over the internet in the United States and internationally.

The company offers performance and security solutions designed to help websites and business applications operate while offering protection against security threats. It also provides media content delivery solutions that are designed to deliver movies, television shows, live events, games, social media, software downloads and other content on the internet in fixed-line and mobile networks; adaptive delivery solutions for streaming video content; and download delivery solution that offers accelerated distribution for large file downloads, including games, progressive media files, documents and other file-based content.

The sell-off was surprising as, although the guidance was lower, the severity surprised many on Wall Street, and perhaps makes the company even more attractive.

The stock is rated Overweight at Oppenheimer, with a $70 price target. The Wall Street consensus target is $63.65. The shares ended trading last Friday at $47.38 apiece.

8X8

This company has long been touted as a potential takeover target. 8X8 Inc. (NASDAQ: EGHT) offers a cloud-based solution for business communications and collaboration on a unified platform spanning voice, video, contact center, and desktops that replaces legacy and expensive on-premise systems.

The service is delivered as an application that follows the user regardless of device (office phone, smartphone, desktop, tablet). Features include voice, video, text, fax, audio conferencing and integration with enterprise resource planning and customer relationship management systems.

The company has posted solid results this year, and although it is not covered by Oppenheimer, it is well liked on Wall Street.

The posted  consensus price target for the shares is $18.09. The stock ended last week at $13.15 a share.

Interxion

This stock is a top play for investors looking for European exposure and a potential takeover target. Interxion Holding N.V. (NYSE: INXN) builds and operates 39 carrier-neutral data centers in 11 countries across Europe, spanning nearly 100,000 square meters. The company services approximately 1,500 customers, consisting of network providers, managed service providers, financial services companies, digital media and distribution companies, and enterprises.

With over 600 connectivity providers, 21 European Internet exchanges and most leading cloud and digital media platforms across its footprint, Interxion has created connectivity, cloud, content and finance hubs that foster growing customer communities of interest.

Oppenheimer has an Outperform rating and a $48 price target on the stock. The consensus price target is $47.13, and the shares closed trading on Friday at $44.33.

QTS Realty Trust

This is top pick data center real estate investment trust (REIT) that could be a takeover target. QTS Realty Trust Inc (NYSE: QTS) is a leading provider of secure, compliant data center solutions, hybrid cloud and fully managed services. Its integrated technology service platform of custom data center, colocation and cloud and managed services provides flexible, scalable, secure IT solutions for web and IT applications.

The QTS Critical Facilities Management segment provides increased efficiency and greater performance for third-party data center owners and operators. QTS owns, operates or manages 24 data centers and supports more than 1,000 customers in North America, Europe and Asia-Pacific.

Last year, QTS completed the purchase of a 260,000 square foot data center in Fort Worth, Texas, from Health Care Service Corporation. The facility becomes QTS’s second mega data center in the broader Dallas-Ft. Worth market and strengthens its ability to serve Fortune 1000 enterprises, as well as regional financial services, health care and technology companies.

QTS investors are paid a 3.07% distribution. Oppenheimer does not cover the company, but the consensus price target is $57.53. The shares closed most recently at $50.80.

Zayo Group

This company may offer a private equity firm the most well-rounded and valuable assets. Zayo Group Holdings Inc. (NYSE: ZAYO) provides comprehensive bandwidth infrastructure services in over 300 markets throughout the United States and Europe. Zayo delivers a suite of dark fiber, mobile infrastructure, and cloud and connectivity services to wireline and wireless customers, data centers, internet content providers, high-bandwidth enterprises and government agencies across its robust 82,000 route mile network.

The company also offers 45 carrier-neutral data center facilities across the United States and France. Zayo was the first to offer bandwidth shopping and buying in under two minutes through Tranzact.

The stock was hit hard recently, so the company may be even more attractive to potential suitors.

The Oppenheimer price target for the Outperform rated stock is $42, while the consensus is $36.80. The shares closed last Friday at $31.25 apiece.

In their report, the Oppenheimer team noted this on the advantages of being taken private:

There are numerous advantages to companies going private, including the time saved reporting to a few Private Equity owners, versus an entire base of investors. This time can instead be used to run and grow a company. Private companies also have the benefit of leveraging multi-year growth timelines, and do not have to impress Wall Street each quarter. Management also does not have to comply with any SOX regulations, freeing up more time for business decisions.

These companies may or may not get bought, but as stand-alone investments, they still make sense for investors looking to stay with the huge cloud and data theme.