M&A activity falls to decade low: Can AI deals help in 2024?

Hewlett Packard Enterprise (HPE) is reportedly in talks to acquire Juniper Networks (JNPR) in a deal valued at $13 billion, potentially setting the tone for M&A activity to come in 2024, particularly for artificial intelligence companies.

Yahoo Finance Live anchors Josh Lipton and Julie Hyman comment on the prospects of AI-related acquisitions as dealmaking fell to a decade-low in 2023.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: We got some possible deals in the tech sector too. Let's hit on those. HPE, specifically, nearing a deal to buy Juniper Networks. This is according to reports, a move that would bolster HPEs AI offerings. The news coming after a weak year for M&A volumes with deal counts continuing to steadily decline from 2021 highs.

But a boost in fourth quarter activity could be cause for deal making optimism in 2024. So Julia, this one is interesting. So the Journal is reporting that HPE in advanced talks to buy Juniper for about $13 billion. Of course, Juniper is best known for selling those switches and routers, but they also do have this AI business that's growing nicely and that perhaps has caught the attention of HPE.

Of course, we also have these reports, Synopsis perhaps making a move for Ansys so that raises these questions, could dealmaking perhaps be starting to heat up a little bit in the tech sector or at least certain verticals within the tech sector?

JULIE HYMAN: Yeah, and it's interesting the reaction in this particular situation. Juniper shares moving higher, seeing their biggest one day gain in a while, HPE under pressure so, I don't know if other companies will be dissuaded by one day's market action. Probably not. But I think that the prices that are going to be paid in these cases are going to be important as they usually are.

But just, kind of, looking then at the prospects for what this signals about this year, we keep talking about AI, what's going to happen in AI, is that going to now drive some more deal making activity? Dealmaking was pretty lackluster last year in technology specifically but also everywhere, so I think there are a lot of questions being asked now.

There was a Goldman Sachs white paper that came out in October or so of last year, and they said really what we need to see before we see a big uptick in that M&A activity in AI is that AI needs to shift further, they say, from proof of concept to production before we get this period of elevated M&A activity.

Why? Because acquirers might want to wait a little bit to see what's actually going to be a winner, what's actually going to make money before they start to make bigger moves.

JOSH LIPTON: We did talk to some bullish analysts, tech analyst, and I bring up Mr. Dan Ives in that who we were talking about AI, very bullish, because he thinks this is the year when we start seeing this rampant use cases, rampant monetization, so that'll be an interesting trend to watch there.

With HPE and Juniper, I did want to mention, for viewers too, though, because listen, when we talk about the tech sector, there's been some challenges here, it's the cost of capital, but also it's the regulatory backdrop, which we know has gotten tougher both here and abroad. I checked in with Patrick Moorhead, a long time tech analyst.

And nobody knows enterprise better than Patrick. I just wanted his quick take on the HPE-Juniper. He would not see any big regulatory issues here, his point being if these reports are true two companies in two different markets, edge networking and data center networking, we'll see-- potentially, if we see this deal happen, and the Journal says maybe as soon as this week, how do regulators feel about it.

JULIE HYMAN: Yeah, that's going to be definitely a big question. You know, these are two mid tier players, so there's maybe less-- fewer questions around this than there would be--

JOSH LIPTON: For sure.

JULIE HYMAN: --around some of the more dominant players here, but we will keep watching it, and of course, bring folks the news if and when it gets confirmed and is happening.