Amazon, Microsoft, and Google could take advantage of the market downturn to buy cloud companies - or it may be turbulent enough to scare them off

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Google Cloud CEO Thomas Kurian at Google Cloud Next 2019

• The market caps of many companies have plunged amid the coronavirus crisis - opening up an opportunity for Amazon Web Services, Microsoft, and Google Cloud to make some acquisitions, analysts expect.
• AWS and Google Cloud may acquire application-focused companies, while Microsoft may acquire security or AI companies, one analyst says.
• However, some analysts disagree and say since the market is still uncertain, cloud vendors may wait until after the coronavirus pandemic is over and things are more stabilized.
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Amazon Web Services, Microsoft, and Google Cloud might take the current market downturn as an opportunity to do some shopping, some analysts say.

As the coronavirus crisis continues to force businesses to close and travel to halt, many companies have found themselves with a lower valuation. At the same time, analysts have described Amazon, Microsoft, and Google's cloud businesses as "recession-proof," or at least close to it.

That gives the big tech companies some leeway to start looking at possible companies to buy while prices are low, says Ray Wang, founder and principal analyst of Constellation Research.

"They're going to be cherry-picking acquisitions like there's no tomorrow," Wang told Business Insider. "Anything they want to buy, they want to buy right now."

Still, not all analysts agree. Since the markets are more uncertain, the cloud vendors may wait until the worst of the crisis is over, some analysts say, and M&A may not be their top priority at this time.

Cloud providers want to 'bulk up their offerings'

With a few rare exceptions, public company valuations - particularly the smaller ones - have sank since the beginning of the year, amid all of the tumult. Wang says that it's evocative of the Great Recession of 2008 and 2009, which set off a similar wave of M&A, notably Oracle's 2009 purchase of Sun Microsystems.

"The valuations are so low at this moment," Wang said. "When you think about the valuations of companies like today, we're at 2008 levels. When we think about who's got cash on hand, hey what do you do? There's an opportunity."

This could also be a major opportunity for Google Cloud, which currently trails behind AWS and Microsoft, but which has turned to acquisitions to bolster its strategy, including a $2.4 billion deal last year to buy the data analytics company Looker.

To that point, Jeb Su, principal analyst at Atherton Technology Research, previously told Business Insider "the only way for Google to catch up is to make an acquisition."

Alex Zukin, managing director at RBC Capital Markets, says he would not be surprised if he saw AWS and Google Cloud make acquisitions of application-focused companies. As for Microsoft, he says it could acquire companies in security and infrastructure or AI services.

"I absolutely think that the cloud providers will look at periods of market and valuation dislocation to bulk up their offerings," Zukin told Business Insider.

That being said, while cloud providers might be more willing to make acquisitions when prices are low, the targets might not agree, says David Heger, senior analyst at Edward Jones.

"Sellers may be less willing to reach a deal, though, if they feel that they can no longer get a decent valuation," Heger told Business Insider. "The major cloud players have balance sheets that allow them to do deals, but sellers may be less willing to sell unless they're fearing for survival during a potential recession."

'I feel with so much uncertainty, companies would rather wait'

Still, not all analysts agree that there will be any big deals that arise from the coronavirus crisis. Su says that companies' market caps are only artificially lower because of external events that are not related to the intrinsic value of the company.

That being said, after stock markets settle a bit, there's the potential for some good deals if companies are at a lower valuation, but it's still too early to tell, Su says.

"Whatever is in the pipe might be put on the back burner for a couple weeks," Su said.

Likewise, Sanjeev Mohan, senior director analyst at Gartner, says he doesn't see the current situation as a catalyst for buying, since they're always looking for acquisitions.

"I feel with so much uncertainty, companies would rather wait and let the financial impact of the virus become clear," Mohan told Business Insider. "On the other hand, probably the prices of public companies are a lot more attractive these days."

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