Microsoft-Activision deal could open 'the flood gates for more M&A' in tech: Analyst

A federal judge has given Microsoft the green light to move forward with its acquisition of Activision-Blizzard. Jefferies Senior Analyst Brent Thill joins Yahoo Finance Live to discuss the future of M&A deals in the tech space and the growth potential of Meta's supposed Twitter-killer app Threads.

Video Transcript

SEANA SMITH: The pending $69 billion deal between Microsoft and Activision getting a big boost yesterday but still needs to clear another hurdle-- that is the UK competition regulators-- in order to complete the deal by July 18, the deadline. For more on the latest, I want to bring in Brent Thill, Jefferies, a senior analyst.

Brent, obviously, this news here, yesterday, great news. A big win for Microsoft. My question though is what this means for the broader tech landscape and some of the deal activity that we could see as a result of this ruling.

BRENT THILL: We think it opens the floodgates for more M&A. There's no question that anyone that was looking at doing M&A was looking at the Microsoft transaction with Activision. They were looking at Broadcom VMware. They're looking at Adobe Figma. All these deals are in a holding pattern.

And if we can get these deals closed, we think, ultimately, it's just going to open up more confidence to make the move forward. So good news, I think, is starting to prevail that ultimately if it's good for the consumer, the government can't just block everything. And right now, the government's been in a-- block everything.

And as we've said repeatedly, in many of these examples, these deals are actually good for consumers. They're good for pricing. They're good for choice, and ultimately, as long as the consumer is not hurt, the government can take a stance of it's bad for everyone. It's not a good stance, and that's been the stance that's been taken, which is block everything.

And so every investor is like, look, nothing's ever going to get done again. That doesn't make any sense. It's not good for the economy. It's not good for consumers. It's not-- it's not good for everything. Certainly, we're OK for deals getting blocked when they're not going to be good for the end markets, but in these situations, I think, everyone's scratching their head how the government was going to have a block on all these transactions.

So certainly, don't expect everything's going to fly through. There's going to be ongoing scrutiny, and there's going to be other scrutiny outside the United States that these companies have to go through. But for us, the overall sign is this is going to be a really good thing.

And M&A is a good cleansing process. We've gone through a huge cycle, where a lot of companies have gone public. A lot of companies are [? operating, ?] and they just would be stronger together. And so I think this is a cleanse process we need to go through, and it helps restore confidence back into tech as well for a lot of other names.

AKIKO FUJITA: With that said, Brent, what are some areas within tech that you think are particularly ripe for M&A?

BRENT THILL: Well, I think if you look at the-- in every one of these segments, you look at applications. You look at infrastructure software. You look at cybersecurity. I think the new big one that we're starting to see is in AI. There are a lot of AI startups. They'll never get scale on their own. They need big balance sheets and users and data to get the scale.

So we've seen actually some pretty interesting M&A deals in AI in just the last couple of weeks, and I think that will continue. So what I'd say is I think it's across the board. And if you look at, again, the deals that are out there-- ones in gaming. Ones in infrastructure, VMware Broadcom. When you look at the Figma transaction and collaboration applications, I mean, they're cutting across different segments.

I think we're going to see it across all these end segments. I don't think there's one area that jumps out to us. I think there's multiple areas of the tech stack that will get consolidated. Many of these areas will benefit from M&A returning.

SEANA SMITH: Brent, when it comes to this deal-- Microsoft buying Activision-- the fact that it looks like it is on track here, it is going to go through. It is going to close here, potentially, by that July 18 deadline. What does that then do to other players that are already within the gaming space? Meaning, I guess, how big of an advantage, maybe, does Microsoft and Activision have against the other names that maybe aren't as well positioned given this tie up? Like a EA, for example.

BRENT THILL: Yeah. I'm not the gaming analyst, but what I can see at least on my own kids' behavior is it's not riding on one vendor. They're love and gamers loves for content is spread all over. They could be small publishers, large publishers. So I don't think that there's a huge disadvantage. If this goes through, and it's going to be harder for others, a huge advantage.

I think, ultimately, those that have the most creative content, and they're coming from upstarts, and they're coming from other companies outside. I mean, if you look at the success of some of these other games, like Fortnite, I mean, it-- again, they're not they're not coming from some of the core. They're coming outside Microsoft and others.

So I think right now we're in a situation-- again, when I talked about this earlier, we're in this natural cycle of consolidation. You're going to go through consolidation of the old school, but then it's going to spawn new companies. It's going to give room for new innovation and those titles will come out of nowhere.

Again, much like what we saw with AI, no one anticipated OpenAI to come with ChatGPT. Everyone thought that will come from Amazon, Google, or Microsoft, and it didn't come from any of them. It came from their own initiative, right? So my sense is that we're going to start the cycle over again, and there's going to be excitement and independent platforms that really thrive, and that's been the case in a lot of the gaming companies for the last couple of decades.

AKIKO FUJITA: Brian, I know you've had strong thoughts about Twitter pre and post Elon Musk in the past. Now, you've got Threads threatening potentially Twitter. At least we have seen that it's the most downloaded app-- more than 100 million users. How do you think we should look at Threads in the context of Meta? Is this just an opportunistic play that will drive incremental revenue with advertisers looking for a place, or is this going to be a bigger chunk of the business? Is that the ambition or the vision for Meta?

BRENT THILL: Well, I think, look, it's really exciting, and the pace of adoption is insane. I think it also speaks to Twitter-- and I've said this repeatedly-- really has a terrible user interface, and it's really hard to navigate the content, and there's a lot of stuff you don't want to see. And so ultimately, I think good for Meta and for Zuck taking on what has been a company that's really had the platform out there with Twitter.

I mean, it's just not usable. For a lot of us that use it, it's hard. And so I think they can make it cleaner, more fun, and exciting, and it's part of your social graph. So you're going to learn more about what you actually want to learn about versus seeing pop up ads for things you don't really even care about. And so I think this is-- right now, it's really too early to make the call on monetization.

We know the users are there. They're not providing advertisement on that platform yet. They will build the overall platform out and then add advertising. I think they're going to be super successful. Everyone counted out Reels. Oh, TikTok is going to kill them. It's over. And look at what's happened with Reels. Look at what's happened in other areas where everyone counted Meta out. And we think you never want to count them out, given their scale and their scope of the billions of users across the planet.

So we think it's going to be successful. I don't know when that starts to turn on because it's still really early, but we know that they will monetize this, and I'm sure advertisers are licking their chops. When you look at the number of celebrities, creative types-- we look at the activity, the number of users that are already on the platform.

I'm sure the advertisers are lining up outside. They're going to have a big line to let those advertisers in when they make the call and are ready to go. So I've said this for years. Twitter needed some competition, and I think they finally have got it here.

SEANA SMITH: Maybe not exactly what they wanted to see-- more than 100 million users here on Threads in less than a week. Certainly a very impressive milestone. All right. Brent Thill of Jefferies. Thanks for your time.