Even if you can’t quite squeeze the prospectus into a 140 characters, it is now clear that Twitter is up for sale, with Disney and Google touted as possible buyers. There are rumours swirling of a possible take-over of Netflix. A mega-deal between Amazon and e-Bay has been reported as under discussion, and at least one of the fast-growing music streaming services, led by Spotify, could well be the next company on the block.

The booming tech sector is gearing up for a wave of consolidation, as some companies discover they don’t really have a business model, others find that they don’t have the cash to compete in a ferociously competitive market, and some of the emerging Chinese giants wade into the market.

That matters – and not just because it will consolidate the hold of the big companies that already dominate the internet. It will drive the next stage of what it already turning into an epic bull market. Indeed, if frenzy of M&A deals breaks out, it could easily mark its top.

The screaming hoards of Corbynistas, Cyber-Nats, and swivel-eyed Ukippers that make up daily life on that relaxed and tolerant forum for genteel discussion known as Twitter may soon find they are hammering out messages for a different corporate overlord. After a terrible year on the stock-market, and with is founder Jack Dorsey seemingly unable to turn it around, it is now up for sale.

Alphabet, the new name for Google, is said to have turned it down but may yet change its mind. Disney, slightly implausibly, is said to be in the running, even if Walt will be turning in his grave at some of the language used on the site. Salesforce.com is said to be interested as well, along with Microsoft. We will probably find out who the buyer is in the next month.

But that is far from the only mega-deal on the rumour mill. On Wall Street, shares in Netflix have been rising on talk that the company might be a target, with Apple touted as a suitor, as well as, again, Disney (although someone will have to delicately explain to Walt’s ghost what ‘Netflix’n’Chill’ actually means).

If it not looking at Netflix for a way to spend some of its massive $230 billion cashpile, Apple is also said to be eyeing up the music streaming service Tidal, although more realistically it might prefer to buy the far more successful Deezer or best of all Spotify. Given that Amazon never likes to be left out of anything, it has been lined up as a potential buyer of e-Bay, even if any deal might run into monopoly issues given that both dominate online marketplaces.

In truth, that is just a taster of the likely wave of bids and deals up ahead. The booming tech industry is seeing a spate of takeovers – and will power the next leg of what is turning into a major bull market. Why? There are three reasons.

David Fuller's view

The Fuller Treacy Money site has long maintained that tech and bio tech are the sectors most likely to lead the USA and other tech-savvy stock markets higher over the longer term.  Moreover, 2016 is not replaying the late-1990s devastating tech bubble.  Back then, the better tech companies could envisage their long-term potential, but they knew far less about how to monetise those opportunities in terms of corporate profits.  A massive shakeout and lengthy convalescence followed.

Matthew Lynn’s article above is excellent and I commend it to you.  However, my question is: where are we in the tech cycle today?

We are currently in Q4 of the eighth year for this bull market cycle which commenced in 2009.  That is reason enough for some caution, even though bull markets do not die of old age.  The most frequent executioners are central banks.  Clearly, there is no global pressure to hike short-term rates at this time, although the US is different with many Fed officials chomping at the bit to commence a cycle of somewhat higher short-term rates in December. 

I have long said that the eventual normalisation of interest rates would be a big hurdle for stock markets, some of which could easily experience cyclical bear markets.  That could cause an additional headwind for US corporate profits if the US Dollar Index breaks decisively up out of its lengthy trading range.  This is going to happen; it is just a matter of when.  This would also be a problem for emerging markets which have borrowed USD in recent years.  I think the Fed will hike rates in December but if it does not for any reason, a soft US economy would be a further headwind for gravity defying tech shares. 

Furthermore, the excitement and speculation over tech takeovers and mergers that we are seeing is a late-in-the-cycle phenomenon, as Matthew Lynn similarly observes.  Companies with cash to burn can lose plenty of money with impulsive takeovers, often for fear of missing out and falling behind the competition.  Moreover, the takeover candidates frequently mentioned, Twitter for instance, are in some respects reminiscent of the late 1990s, with popular products but lacking the business plans to generate profits.  History shows us that large takeovers, even if complementary fits, can often take years to sort out at a further cost in capital and management preoccupation.   

    Here is a PDF of Matthew Lynn’s article for The Telegraph.