By Senad Karaahmetovic
Evercore ISI analysts, led by Amit Daryanani, have reflected on the prospects of IBM (NYSE:IBM) potentially trying to replicate the Red Hat deal that proved to be a success despite a $34 billion price tag.
Daryanani reminded investors that IBM did over 25 M&A deals in the past 2 years, worth over $4 billion.
"We do not find this surprising as acquisitions are part of IBM’s medium-term financial model (mid-single-digit revenue growth at constant currency with M&A contributing 1-2 pts to growth)," Daryanani said in a client note.
However, IBM could still opt to do a large M&A deal to drive its top-line growth, as well as attempt to fundamentally transform its business. In this respect, the company could potentially dedicate as much as $30 billion for the right deal, although the management indicated this number could be closer to $20 billion.
"Higher growth tech companies have re-rated lower since the year began; with valuation multiples becoming more attractive vs. a year ago, we think it could make sense for IBM to look to M&A to as away to drive revenue acceleration and/or further transform their business. Given the success of the RHT acquisition, we think a potential large transformative deal could be viewed positively by investors," the analyst added.
Evercore ISI’s screen of public market companies that could potentially be acquired by IBM resulted in about 80 results. For instance, companies like Zscaler (NASDAQ:ZS), Okta (NASDAQ:OKTA), DocuSign (NASDAQ:DOCU), RingCentral (NYSE:RNG), MongoDB (NASDAQ:MDB), and Gitlab (NASDAQ:GTLB), all found themselves on the list of potential M&A targets for IBM.