M&A Opportunities: 3 Automation Stocks Set for Big Moves
Thanks to artificial intelligence (AI), automation stocks will in demand by investors throughout this year and into next.
On December 11, Hollysys Automation Technologies (NASDAQ:HOLI) announced that it would be acquired by Ascendent Capital Partners. The latter is a privately owned Hong Kong investment firm.
Ascendent is paying $1.66 billion in cash for the Beijing automation control systems provider. The investment firm paid a 42% premium to the price of HOLI stock on August 23. This occurred the day before it initiated a formal sale process.
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IBM (NYSE:IBM) has a section of its corporate website dedicated to intelligent automation.
“Intelligent automation (IA), sometimes also called cognitive automation, is the use of automation technologies – artificial intelligence (AI), business process management (BPM), and robotic process automation (RPA) – to streamline and scale decision-making across organizations,” IBM’s website states.
Moving into 2024, the companies that provide automation products and services will be attractive M&A candidates for larger technology and investment firms.
Three automation stocks are ready for big moves in 2024 due to increased M&A activity.
UiPath (PATH)
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UiPath (NYSE:PATH) is a New York-based robotic process automation (RPA) software maker. PATH stock is up 107% in 2023 but down 54% from its April 2021 initial public offering.
One example of a company that uses UiPath’s RPA software is First Abu Dhabi Bank, the largest bank in the United Arab Emirates. It got its start with RPA in 2019. The pilot project was intended to drive AI initiatives across the bank.
For example, moving relationship managers from one set of accounts to another involved significant manual administration to change things in its various systems. With RPA, the process was reduced from seven days down to one. That is a staggering 88% increase in efficiency, saving approximately 840 hours per year.
In the first nine months of 2023, UiPath had a non-GAAP operating profit of $122 million from $903 million in revenue. It is not quite GAAP profitable. Someone larger will make an offer in 2024 before the price increases.
Aspen Technology (AZPN)
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Aspen Technology (NASDAQ:AZPN) provides purpose-built software to asset-intensive industries. Those include utilities, oil and gas producers and refiners, chemical companies, miners, and pharmaceuticals.
The software is intended to keep their clients’ assets running longer and faster. Considering the infrastructure assets cost, they must be able to stay abreast of regular, daily operations.
In September 2022, I selected Aspen as one of three unknown tech stocks that could rocket in 2023. Its shares flew through the first quarter but got hammered at the end of April after reporting disappointing Q3 2023 results. That included an adjusted earnings per share miss of 60 cents, or 36%, with a $56 million (20%) miss.
Its shares fell 25% in a single day. AZPN stock has yet to return to its April and 52-week high of $247.96.
As a result of the dive in its share price, the company entered into a $100 million accelerated share repurchase (ASR) program with JPMorgan Chase. It received 487,626 shares on May 5 and an additional 107.045 on Aug. 7, when the ASR was settled. It paid an average price of $168.16, a return on investment of nearly 24%.
On a non-GAAP basis, it expects free cash flow of at least $360 million in fiscal 2024 (June year-end), up 23% from 2023, on at least $1.12 billion in revenue.
Expect to see an offer coming in 2024.
Symbotic (SYM)
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The price for acquiring Symbotic (NASDAQ:SYM) got a lot more expensive in 2023. The warehouse robotics automation software and hardware manufacturer has seen its stock jump by 344% year to date (YTD). As a result, its market capitalization is nearly $30 billion.
However, only its Class A shares (one vote per share) trade on Nasdaq. Its V-1 (one vote) and V-3 (3 votes) common are unlisted. It had 557.24 million shares outstanding as of Dec. 5, 2023.
Looking at most stock quotes for SYM, you will see a market cap of $4.39 billion based on 83.72 million outstanding Class A shares. However, that doesn’t take into account the 407.53 million V-3 common shares that convert into V-1 shares. Nor does it factor the 65.99 million V-1 outstanding as of Dec. 5. All of the V-3 common automatically convert into V-1 in June 2029, seven years after its combination with the SVF Investment Corp. special purpose acquisition company (SPAC).
As a result, Symbotic CEO Richard Cohen controls 89.5% of the votes. Any sale will have to have his approval. As an aside, Cohen first invested in the company in 2006 when it was known as CasePick and took over as CEO in 2017.
Symbotic is the least likely to be acquired in 2024, because it has a $23.3 billion backlog of systems to install by 2029 as of Sept. 30. Further, Cohen may feel the business will be worth more in 2029 than it is today.
But you never know.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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