Don't be too hard on yourself if you were caught flat-footed by Dell's record-setting $67 billion acquisition of EMC. Deal flow in technology is gaining steam and there will be more opportunities to hitch a ride.
“I think we're in the midst of a point where we're going to see significantly more mergers and acquisitions in the technology sector,” said Angelo Zino, senior industry analyst at S&P Capital IQ.
The Dell-EMC deal, announced Tuesday, is nearly twice the size of the May announcement by Avago Technologies to buy Broadcom for $37 billion.
“Most of the companies in the tech sector have incredible balance sheets and they're looking for other ways to leverage earnings,” Mr. Zino said.
So far this year, there have been 44 deals announced valued at $1 billion or more in the tech sector, for a total value of $287 billion. That compares to 57 announced deals for all of 2014, valued at $138 billion, and 39 announced deals in 2013, valued at $130 billion.
CONTINUED CONSOLIDATION
Mr. Zino said he expects a
continued consolidation in the tech sector, with a particular emphasis on the so-called hardware supply chain, including the kinds of companies that go directly to the end consumer and the companies that manufacture those products.
With that in mind, investors and financial advisers can gain exposure in a variety of ways.
The Technology Select Sector SPDR ETF (XLK) represents the technology companies and some telecommunications companies inside the S&P 500 Index.
The ETF is up 1.8% this year, and is up 11.2% over the past 12 months. By comparison, the S&P 500 is down 42 basis points since the start of the year but up 8% over the past 12 months.
For a more targeted approach the rolling wave of potential tech-sector deals, there is the SPDR S&P Semiconductor ETF (XSD), which is up 1.4% this year, and 29.3% over the past 12 months.
A few other ways to play the tech sector right now include the iShare PHLX Semiconductor ETF (SOXX) and PowerShares S&P Small Cap InfoTech ETF (PSCT).
SOXX, which has Broadcom among its top 10 holdings, is down 7.3% this year, but up 13.7% over the trailing 12 months. PSCT, which is a pure small-cap play, is up 2.5% this year, and 23.3% over the past 12 months.
Source: Morningstar
Note: Returns as of Oct. 12
“The larger-cap companies in the tech sector with strong cash flow clearly have the wherewithal to make acquisitions,” said Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ.
“Lately, it's been better to be in the small-cap space of the tech sector,” he added. “There's both the potential for an acquisition target and the smaller companies are less affected by the
strength of the U.S. dollar.”
