{"id":104136,"date":"2017-03-30T11:33:27","date_gmt":"2017-03-30T15:33:27","guid":{"rendered":"http:\/\/countingpips.com\/?p=104136"},"modified":"2017-03-30T06:33:52","modified_gmt":"2017-03-30T10:33:52","slug":"ceos-hunt-down-new-takeover-targets","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/03\/ceos-hunt-down-new-takeover-targets\/","title":{"rendered":"CEOs Hunt Down New Takeover Targets"},"content":{"rendered":"
March 30, 2017<\/div>
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By WallStreetDaily.com<\/u><\/a> \"CEOs<\/p>\n

\"LouisA storm is brewing in the stock market, and it has nothing to do with the failure of Trumpcare.<\/p>\n

Right now U.S. corporations are sitting on nearly $2 trillion in cash here at home. And according to Capital Economics, American firms have another $2.5 trillion stashed overseas.<\/p>\n

Combine that with low interest rates and tepid earnings growth and you\u2019ve got the perfect recipe for merger mania this year.<\/p>\n

But what should you look for in a takeover target, and more importantly \u2014 which companies make the grade?<\/p>\n

Senior Analyst Jonathan Rodriguez breaks it all down for you below\u2026<\/p>

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Ahead of the Tape,<\/p>\n

Louis Basenese
\nChief Investment Strategist, Wall Street Daily<\/i><\/p>\n

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Why Takeovers Are Such a Big Deal<\/h2>\n

\"JonathanIf you\u2019ve followed the financial news over the last few years, you\u2019ve likely seen a lot of coverage on mergers and acquisitions.<\/p>\n

And if you weren\u2019t following closely, you might wonder why M&A is such a hot topic\u2026<\/p>\n

Well, in the wake of the financial crisis of 2008 \u2014 and fueled by ultralow interest rates \u2014 corporate earnings took off in a way not seen since the dot-com boom of the 1990s.<\/p>\n

But after years of eye-popping earnings growth, the gravy train finally hit a speed bump in 2015. A slowdown in consumption overseas \u2014 particularly in China and Europe \u2014 hit multinational corporations hard here in the U.S.<\/p>\n

But many firms were already hoarding mountains of cash \u2014 and had access to even more easy money with cheap credit.<\/p>\n

So what do you do as a loaded company when growth slows down and you\u2019re not sure when it\u2019s going to pick up again?<\/p>\n

You create<\/i> growth by acquiring your rivals and pocketing their cash flow.<\/p>\n

What followed in 2015 was a record-breaking year for M&A.<\/p>\n

Around the world, $4.3 trillion of merger deals were made, according to Dealogic.<\/p>\n

The Early Bird Gets the Worm<\/h2>\n

Now, you might be wondering what this means for the average shareholder.<\/p>\n

In short, if you happen to be one of the fine people holding shares of a takeover target, you could be in line for a big <\/i>payday.<\/p>\n

Acquiring companies will often pay for targets in cash, stock and\/or debt. And they can offer investors a premium to the current share price anywhere from 20\u201360%.<\/p>\n

For instance, semiconductor giant Intel Corp. announced a deal this month to purchase Israeli tech firm Mobileye N.V. \u2014 for $15.3 billion.<\/p>\n

Intel offered to buy Mobileye shares at $63.54 in cash, which represented a 34% premium to the latter\u2019s closing price the day before the announcement.<\/p>\n

On March 13, the day news of the deal broke, shares gained 28%.<\/p>\n

As you can see, the rewards of owning a hot takeover target before it\u2019s scooped up are big \u2014 and can come swiftly.<\/p>\n

How to Snag Your Pot of Takeover Gold<\/h2>\n

As you can imagine, the criteria for an acquisition vary based on the kind of business a company operates.<\/p>\n

But many takeover targets display similar traits\u2026<\/p>\n

For starters, look for companies with a high cash balance and low level of debt.<\/p>\n

Acquiring firms love to see a high cash balance in targets. After all, the acquirer is going to pocket the loot once the deal goes through.<\/p>\n

In fact, a company\u2019s enterprise value (EV) can be a very useful figure for investors hunting for M&A gold.<\/p>\n

EV is simply a firm\u2019s market capitalization plus debt, minus cash \u2014 and it represents a company\u2019s theoretical takeover price.<\/p>\n

Investors can also divide this number by a company\u2019s earnings before interest, taxes, depreciation and amortization (EBITDA) to give them an even more powerful tool.<\/p>\n

EV\/EBIDTA, better known as the enterprise multiple, allows investors to compare a target with other firms on a relative basis.<\/p>\n

Some analysts even consider EV\/EBITDA to be a superior measure of earnings than the price-earnings ratio.<\/p>\n

In the context of takeovers, though, the lower an enterprise multiple\u2026 the better a value the target is.<\/p>\n

Above all, a company sporting a valuation below that of the broader market (i.e., price-earnings, price-to-sales, etc.) is more likely to be acquired than a company with an excessive valuation.<\/p>\n

Bottom line: The combination of slow growth, low interest rates and high corporate cash balances will likely fuel a resurgence of mergers and acquisitions this year. And keeping a keen eye out for \u201ccheap\u201d companies with lots of cash and little debt could make you rich in the event of a takeover.<\/p>\n

On the hunt,<\/p>\n

Jonathan Rodriguez
\nSenior Analyst, Wall Street Daily\u00a0\u00a0<\/i><\/p>\n

The post CEOs Hunt Down New Takeover Targets<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com A storm is brewing in the stock market, and it has nothing to do with the failure of Trumpcare. Right now U.S. corporations are sitting on nearly $2 trillion in cash here at home. And according to Capital Economics, American firms have another $2.5 trillion stashed overseas. Combine that with low interest rates […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-104136","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104136","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=104136"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104136\/revisions"}],"predecessor-version":[{"id":104143,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104136\/revisions\/104143"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=104136"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=104136"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=104136"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}