3 Potential Takeover Targets to Buy Now: August 2024

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Lower interest rates make it easier for companies to make acquisitions. That’s because lower interest rates allow them to borrow the funds they need to make big deals much cheaper.

After the economy added net jobs in July fell well short of economists’ average estimates, 100% of economists surveyed expect the Federal Reserve to cut its benchmark rate by half a percentage point in September. About 60% expect the central bank to cut another half a percentage point in November, with the rest predicting a cut of a quarter of a percentage point.

Even before the Street became convinced that the Fed would quickly cut rates, the total value of global M&A activity rose 5% in the first half of 2024 compared with the same period a year earlier. Now, with interest rates likely to fall sharply in the future, the number of deals and their value are likely to be much higher than the past two years, when interest rates were relatively high. Here are three potential acquisition targets that could be snapped up by this trend.

CyberArk (CYBR)

Many large technology companies have acquired significant cybersecurity practitioners. In the past decade, FireEye, McAfee, Symantec and Cylance have all been acquired. Since all companies need to protect themselves from cyberattacks, most IT security companies will have no problem generating significant growth. And showing that there is still a strong demand for companies to buy in this space, Alphabet (NASDAQ:GOOG, GOOGLE) offered to pay $23 billion WizardIsraeli IT security startup. Wiz, however, turned down the offer.

Just like Wiz, CyberArk (NASDAQ:CYBR) is based in Israel. However, unlike the startup Wiz, CyberArk is a very mature IT security company. In the first quarter alone, the company’s revenue grew 37% compared to the same period a year earlier to $221.6 million. It also generated $68.6 million in cash from operations. The company’s client list includes such big names as MasterCard (NYSE:MOTHER), Blast (NYSE:AFL) and ExxonMobil (NYSE:XOM).

CYBR stock has a market capitalization of $10.5 billion. A big player like Alphabet, Cisco (NASDAQ:CSCO) Or Microsoft (NASDAQ:MSFT) I could easily buy it.

Year (YEAR)

I have long believed that the owner of a large cable station such as Comcast (NYSE:CMCSA) Or Paramount Global (NASDAQ:Paragraph) could take on Roku. That’s because Roku’s revenue, unlike cable, is growing rapidly. Indeed, revenue rose 19% from the same period a year earlier to $882 million.

And while Roku isn’t profitable (it reported a net loss of $493.2 million in the 12 months ended in June), it generated $104.6 million in cash last year. What’s more, it could be profitable on the bottom line after the synergies an acquisition would generate.

Equally important, the company had more than 80 million active accounts in February. Traditional cable channel owners can use ads on Roku to attract tens of millions of viewers to their shows.

Roku’s takeover is also more likely because other streaming channels than Netflix (NASDAQ:NFLX) and Disney (NYSE:NO) did not gain much popularity.

Therefore, I believe that Comcast, Paramount and Warner Bros. Discovery (NASDAQ:WBD) are ready to abandon their go-it-alone strategy for content and audience attraction. That’s especially true for Warner Bros., whose revenue fell 6% year over year in the latest quarter. Comcast’s Peacock streaming service is also struggling. Either company could decide to buy Roku to shake up its strategy.

Roku’s current market cap is $7.8 billion, so it could be acquired for $20-25 billion. In my opinion, this would be a very feasible deal for Comcast, Paramount, or even Warner Bros Discovery. As a result, I see Roku as one of the top potential acquisition targets.

Upstart Holdings (UPST)

Upstart Holdings (NASDAQ:UPST) uses artificial intelligence to find borrowers who have been rejected by lenders but who pose a low credit risk.

The company has struggled in recent years, with revenue falling from $907 million in 2022 to $560 million in 2023 and a similar $568 million in the 12 months to June.

However, I think Upstart can find a way to improve in the current quarter. The company gave a Q3 revenue forecast of $150 million. That’s well above the average analyst estimate of $135.3 million and Q2 sales of $128 million.

CEO Dave Girouard cited “significant advances in our AI model, revitalized funding sources, and increased operational efficiencies” as reasons for the initial change.

It’s possible the company is taking advantage of rapid advances in AI technology. Coupled with a lot of positive publicity about AI, that could convince more banks to take advantage of Upstart’s offering.

Similarly, given the positive feedback on AI and the willingness of many companies to implement this technology, a fintech company such as Card payment (NASDAQ:PYPL) Or SoFi Technologies (NASDAQ:SOFI) might like the idea of ​​acquiring Upstart. Such a deal would give those companies a chance to show off their “AI unit” to investors.

And with Upstart expected to generate positive EBITDA in Q4, its business could be very profitable after synergies with PayPal, SoFi or another fintech. As such, Upstart deserves to be on any potential acquisition target list.

As of the date of publication, Larry Ramer did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are the author’s own, subject to the InvestorPlace.com Publishing Guidelines.

At the time of publication, the editor in charge held a long-standing position at XOM and WBD.

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