Some market watchers say consolidation in cloud computing will intensify this year, and there are plenty of signs that this prediction may turn out to be correct.
In this spirit, the First Trust ISE Cloud Computing Index Fund (NasdaqGM: SKYY) is a listed index fund to be evaluated. The $5.1 billion SKYY tracks the ISE CTA Cloud Computing Index and is the oldest and largest ETF in this category.
SKYY’s usefulness as a play on cloud computing M&A activity is already apparent. On Sunday, Cara Lombardo for The Wall Street Journal reported that Elliott Management Corp’s private equity arm, Evergreen Coast Capital, and Vista Equity Partners are set to reach an agreement to take Citrix Systems (NASDAQ:CTXS) private in a transaction that values the company of software at nearly $13 billion.
“Based in Austin, Texas, Vista is a pioneer in software investing and manages over $86 billion in assets. Its chief executive, Robert Smith, founded Vista in 2000,” according to the Journal. “Citrix should be combined with Tibco, a software company that Vista already owns, some people said.”
The possibility of Citrix being taken over is relevant for SKYY investors because, as of January 27, the stock is the ETF’s seventh-largest holding. at a weight of 3.56%. However, there is more to the potential power of SKYY’s consolidation story. Take the case of Splunk Inc (NASDAQ:SPLK), which some investors believe is now cheap enough to attract a takeover bid.
“Cisco could be a buyer for Splunk, especially if the company is unable to ramp up execution this year,” said Matthew Hedberg, analyst at RBC Capital Markets. Business Intern. “The two companies have a strategic partnership in which Splunk’s products run on Cisco hardware.”
Cisco Systems (NASDAQ:CSCO) and Splunk combine for 4.75% of SKYY’s listing. Box (NYSE:BOX) and Smartsheet (NASDAQ:SMAR) are two more of SKYY’s 67 holdings that some analysts say could be credible takeover targets. These stocks combine for 1.34% of the ETF’s listing.
Cloud computing M&A activity could also lead to some big names becoming targets. This could include DocuSign (NASDAQ:DOCU) and Zoom Communications (NASDAQ:ZM). Futurum analyst Dan Newman told Business Insider that some big names may sue these two companies.
“With the void in its business software portfolio, Amazon has the resources and the motivation to buy the $41.58 billion company (Zoom),” Newman said. “Amazon’s own video conferencing software, Carillondid not enjoy the same mainstream success as Soft and Microsoft’s Teams app, which Newman called the “undisputed giant” of communications software. »
Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) combine for more than 7% of SKYY’s list, while Zoom and DocuSign combine for just under 1%.
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