A hot new hedge fund expects 'hundreds of billions of dollars' in tech deals (CSOD, AAPL, DIS)

Margate Capital, a New York fund launched last year by former Paulson & Co. partner Samantha Greenberg, lays out the thesis in its fourth-quarter investor letter, a copy of which was obtained by Business Insider.

"We believe we are in the early innings of a substantial wave of consolidation in the technology industry, specifically within semiconductor and software verticals," Greenberg wrote. "We jokingly say that each month we read about a 'new hundred billion dollars' raised to pursue technology assets."

Here are three examples, as per the letter:

"(1) the recently announced $100Bn Softbank Vision Fund, backed by Softbank and Saudi Arabia’s Public Investment Fund; (2) a November Wall Street Journal article noting that technology-focused private equity firms have raised $100Bn from 2015 to 2016 (on top of $50Bn in 2014) to pursue technology deals; and (3) China’s announcement that it is dedicating $100Bn to purchase and invest in semiconductor assets."

Margate, which manages about $200 million, is "particularly bullish on software consolidation as the universe of software buyers continues to expand," the letter added, noting the emergence of "a new category of software company acquirers" — industrial conglomerates.

Here's Greenberg:

"This is illustrated by two marquee transactions in Q4: Siemens' acquisition of Mentor Graphics for $4.5Bn and Koch Industries' $2.5Bn investment in Infor (at >$10Bn valuation). We similarly expect General Electric to pursue software acquisitions, in furtherance of its GE Digital business strategy and to achieve its stated target of growing its revenue base from $6Bn to $15Bn."

In line with its investment thesis on tech, Margate is investing in Cornerstone OnDemand, which has received takeout offers. "With CSOD’s current stock price 20% below where it traded in September and its fundamentals poised to accelerate, we continue to be excited about the position," the letter said.

Margate's strategy launched August 1 and returned 5% net of fees through the end of 2016 compared with 4% for the S&P 500, according to the investor letter.

Greenberg is one of very few women managing their own hedge fund. As a partner at Paulson & Co., she headed the group that invests in the media/cable/satellite and consumer sector.

Last year Greenberg pitched a bet on the Walt Disney Company at the Robin Hood Investors Conference in New York.

Her latest letter adds to the thesis, describing the company as a "logical acquisition target" for Apple. "Apple has talked about the benefit Apple sees when it owns exclusive content, and owning Disney would reduce Apple’s exposure to product cycles, expanding AAPL's valuation multiple," Greenberg wrote. "It would also be an accretive use of Apple's cash and even more so if Apple's $200Bn of offshore cash can be repatriated favorably."

Disney, along with Cornerstone, is among the firm's top five long positions, according to the letter.