Networking M&A Season Could Be Approaching

According to a recent report released by Goldman Sachs, communication technology mergers and acquisitions could see a large boost in the near future. In particular, the company raised its networking M&A rankings (the probability of getting acquired) on six telecom equipment vendors — Adtran, Calix, Ciena, Infinera, Juniper Networks, and Silver Springs Networks — in a report issued Monday.

Juniper‘s increased M&A ranking comes on the heels of new leadership in CEO Shaygan Kheradpir, who has been making sure Juniper is cutting costs and narrowing its focus on the data center while limiting — and possibly relieving itself of — its campus networking business. With more concise attention, Juniper could be a more attractive and digestible mark. Furthermore, press rumblings citing a German publication have hinted to a possible acquisition of Juniper by Nokia.

Both Gigamon’s and Infoblox’s M&A prospects got lowered by Goldman Sachs, partly due to their lower growth outlooks following the April quarter. In addition, Goldman’s analysts lowered Aruba Networks‘ M&A ranking, due to increased competition and a scarce pool of potential acquirers.

Reasons of note for updating the M&A rankings include companies investing for growth and the ongoing theme of merging and consolidation in the telco and cable sector. Also, high-multiple growth companies are trading at more appealing valuations, while potential large-cap acquirers of networking companies have a combined cash surplus of close to $100 billion and could possibly looking for M&A opportunities overseas. Finally, several acquirers’ stocks have risen with the announcement of M&A plans, an obvious sign of positive investor response.

Then there’s the ongoing consolidation among this group’s customers, the service providers. Comcast, Vodafone, AT&T, and Level 3 have announced consolidation plans of some kind. Liberty Global has already completed acquiring Virgin Media, and Sprint’s purchase of T-Mobile has been long speculated in the media. The move to merge service providers shows no sign of slowing, spawning speculation that vendor consolidation will result.

Acquirers are also looking to overseas M&A as a tax-efficient use of capital. Acquiring and merging abroad could allow companies to avoid taxes associated with repatriating revenue. At the same time, international companies with large cash balances could use this money to increase reach in the United States.