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Big Tech Should Think Inside the Box

One specific tech company checks a lot of boxes when it comes to qualities major corporations look for when making acquisitions.

July 22, 2021

What do acquirers of publicly traded companies look for in their acquisition targets? While each case will be different and made for various reasons, we can take a reasonable guess at many qualities they might look for, including strategic synergies, sensible valuations, growth opportunities, and high margins. Box Inc. (NYSE: BOX) checks a lot of these boxes (no pun intended).

Box enables its enterprise customers to securely manage their content on its cloud platform that organizations can then share freely to any device. In a world where users create data from numerous operating systems, devices, and applications, Box has partnered with several big tech companies to offer nearly 1,500 different integrations to ensure its customers can access data from any device, app, or platform.  

Box also offers many applications and programs on top of its secure and accessible data storage, including data governance, workflow automation and management, administrative controls, and a platform that makes it easy to build customized apps. 

While this all sounds nice, I don’t think it’s a secret that the company has struggled to keep up with nimbler competitors ranging from Docusign (NASDAQ: DOCU) to ServiceNow (NYSE: NOW). Box has significantly underperformed the market in recent years, even as the business world has invested heavily in digital transformation initiatives. 

While Box’s revenue growth is much slower than its peers (rising to $202 million in its 2022 Q1, a 10% increase year over year), its valuation is also much lower. With a price-to-sales ratio under 5.0 and a forward P/E ratio of about 24, Box could even be considered a value stock — a rarity in the tech universe! More importantly, with a market cap still under $4 billion, Box could easily be gobbled up by several companies looking to expand their cloud presence. In my opinion, the list of probable suitors could include IBM (NYSE: IBM), Oracle (NYSE: ORCL), (NYSE: CRM), or SAP (NYSE: SAP). 

Interested in learning more? Click here to see which active stock recommendation on the 7investing scorecard would be most affected by an acquisition of Box.

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