Dynatrace, Elastic, JFrog, SentinelOne, Zoom Video potential M&A targets – analyst

Confluent (CFLT), Dynatrace (NYSE:DT), Elastic NV (ESTC), JFrog, (FROG) SentinelOne (S), Twilio (TWLO) and Zoom Video (NASDAQ:ZM) have a medium to high likelihood of being acquired, according to an Oppenheimer analyst.

GitLab (NASDAQ:GTLB), Informatica (INFA), Rapid7 (NASDAQ:RPD), SmartSheet (SMAR) and Tenable (TENB), which all reportedly received takeover interest or activist investor involvement, also have a medium to high probability of being purchased, Oppenheimer analysts including Ittai Kidron wrote in a note on Tuesday.

“With the market expecting the Fed to begin cutting interest rates in September, we see the potential for M&A activity to pick up,” Kidron wrote in the note. “We believe buyers (particularly PE buyers) are likely to feel more comfortable leveraging debt to finance larger deals, with prospect of refinancing at lower rates in the near/mid-future.”

Potential deals could be done at a 40%-50% premium to their current valuation, according to Oppenheimer’s Kidron.

“We believe potential acquisition candidates exhibit one or more of the following characteristics: (1) high gross retention rates, (2) strategic fit within a larger platform offering, (3) opportunity for a larger strategic or financial buyer to improve GTM/execution challenges, and (4) attractive valuation with strong cashflow generation potential,” Kidron wrote.

Oppenheimer sees Gitlab (GTLB) having a high probability of a takeout at a multiple of 10-12x revenue. Reuters reported last month that GitLab was exploring a sale after the San Francisco-based company attracted acquisition interest, including from peers, such as cloud monitoring firm Datadog (DDOG).

Rapid7 (RPD) is another firm that Oppenheimer identified as having a high likelihood of a takeover and sees a potential deal at a 4.5-5.5x revenue multiple. Media reports in late June indicated that activist investor Jana Partners accumulated a stake in Rapid7 and planned to push for a sale. The Information also reported in July of last year that Rapid7 received an offer from private equity firm Thoma Bravo, thought the PE firm and cybersecurity firm were too far apart on price.

The other tech company that has a high probability of a takeout is Zoom Video (ZM) according to Oppenheimer, with a potential multiple of 4-5x. Zoom Video could attract buyers including Google (GOOGL), AT&T (T), T-Mobile (TMUS), Verizon (VZ) and financial sponsors.

On Wednesday, Bloomberg reported that cybersecurity firm Tenable (TENB) is exploring options after garnering takeover interest. The company could see interest from financial sponsors and strategic buyers. Oppenheimer sees a medium chance of takeout at a 7-8x revenue multiple, with a buyer being most likely a private equity shop.

Possible acquirers for the M&A targets include Google (GOOGL), IBM (IBM), Salesforce (CRM), Oracle, ServiceNow (NOW), DataDog (DDOG), Palo Alto Networks (PANW), Atlassian (TEAM) and Snowflake (SNOW), according to Oppenheimer.