Most Acquisitions Are Finalized At A Price That Leaves Some Shareholders Sitting On A Loss

Hewlett Packard Enterprise Co's HPE announcement that it will acquire Nimble Storage Inc NMBL was certainly well received by investors who bought the stock within the past year, but the same can't be said for longer-term shareholders.

According to Gadfly's Shira Ovide, Nimble's stock traded as high as $58 in late February, which is more than 4.5 times the $12.50 per share Hewlett Packard agreed to pay. Nimble's shareholders who have held on to the stock for years hoping for a long-term turnaround are now left with a "dud."

In fact, this quite a common occurrence in the tech M&A space. Ovide stated that based on Bloomberg data, a whopping 95 percent of acquisitions involving U.S. tech companies over the last two years have been finalized at a price that's lower than the stock's record highs.

Some of the more drastic examples include Dell's acquisition of EMC at $24.05 which is $78.59 per share below EMC's record high of $102.64 and Microsoft Corporation MSFT's acquisition of LinkedIn at $196 per share versus its all time-high of $276.18.

But Why?

Ovide offered two reasons to explain this trend.

First, some technology companies never recovered from their dot-com highs, including EMC's stock which peaked 17 years ago.

Another explanation could be that the tech companies up for sale are merely "unloved software companies whose best days seemed to be behind them." In Nimble Storage's case, perhaps management felt it "wasn't worth sticking around" to see if the company can bounce back from rough patches.

Bottom line, Ovide suggested the trend of buying tech companies at a price below its peak isn't necessarily a disaster, but does serve as a sign of caution for investors that "what goes up and then down doesn't necessarily go back up."

See Also:

What Happens To My Stock When The Company Gets Acquired?

Look For Strong Fundamentals When Investing In Acquisition Targets