Oct 1, 2021 - Economy & Business

Stock deals are hot in pandemic-era merger spree

Illustration of a thermometer bending into a stock trend line

Illustration: Annelise Capossela/Axios

Those turbocharged stock gains are coming in handy. More frequently, companies are using their shares as the hot currency to snap up other firms.

Why it matters: There’s been an uptick in the number of stock M&A transactions during this year's deal frenzy, helped by soaring valuations. But cash still looms large — and the growth in stock deals may be fleeting amid market volatility.

What’s happening: Video conferencing giant Zoom just called off an all-stock deal with Five9 that was initially worth nearly $15 billion — what would have been one of the biggest tech combinations of the year (behind the Square-Afterpay deal, also all-stock). The cloud-based call center’s shareholders shot it down.

  • One possible factor is a shrinking premium. Zoom's stock — which soared to meteoric heights as a poster child of the “stay at home” trade — lost steam. It's down 28% since the deal was announced (Five9's stock is down about 11% in comparison).
  • Influential proxy advisers like ISS recommended Five9 shareholders reject the deal because “it exposes …[them] to a more volatile stock whose growth prospects have become less compelling as society inches towards a post-pandemic environment."

Zoom's (now dead) deal is part of a boom of that sort in the tech sector. Over 160 deals announced so far this year have included a stock consideration — the most since 2004, according to data provided to Axios by Refinitiv.

  • Tech stocks are the face of the stock market’s historic bounceback (and then some), giving those companies an even hotter-than-usual currency to do deals.
Data: Refinitiv; Chart: Thomas Oide/Axios
Data: Refinitiv; Chart: Thomas Oide/Axios

The big picture: About 6% of year-to-date U.S.-based deals at least partially involve stock, per Refinitiv — a sliver, but still the biggest share in a decade.

  • Those deals — where the acquirer is a public company — accounted for 41% of the total value, 2 percentage points higher than this time last year.

The bottom line: “Those who are using stock — their currency is highly valued. It’s allowed them to meet the pricing demands of those who are ready to sell,” Bill Doran, a deal attorney at Benesch, tells Axios.

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