As the U.S. economy recovers, M&A activity is picking up steam in a big way. You could profit from owning these potential takeover targets.
Mergers and acquisitions have roared back this year, with potential takeover targets everywhere. Global M&A has hit a record $2.4 trillion, up 158% over 2020, according to a Refinitiv Deals Intelligence report—the highest since the company began collecting data in 1980. For three months in a row, deals have topped $500 billion.
Knocking tech deals off their pedestal in May (although tech deals delivered an impressive $145.8 billion from January-May) is the media and entertainment sector, which accounted for 29% of May’s announcements. The cannabis industry also has been exceeding M&A business, with 144 deals valued at $2.8 billion in the U.S.
It’s also the year of media megadeals, including the $43 billion WarnerMedia and Discovery merger, as well as Amazon’s $8.5 billion purchase of famed studio MGM.
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And speaking of megadeals, so far this year there have been 54 of them. Here’s a list of the largest:
|Acquiring Company||Acquired Company||Acquiring Company Industry||Deal Size||Announced Month & Year|
|AT&T (Warner Media)||Discovery||Merger||$43 Billion||May 2021|
|Canadian National Railway (CN)||Kansas City Southern||Merger||$33.6 Billion||May 2021|
|Cabot Oil & Gas||Cimarex||Merger||$17 Billion||May 2021|
|Amazon||MGM||Acquisition||$8.45 Billion||May 2021|
|Clarivate||ProQuest||Acquisition||$5.3 Billion||May 2021|
|Apollo Funds||Verizon Media||Acquisition||$5 Billion||May 2021|
|Francisco Partners and TPG Capital||Boomi from Dell Technologies||Acquisition||$4 Billion||May 2021|
|Clayton, Dubilier & Rice||UDG||Acquisition||$3.7 Billion||May 2021|
|Arthur J. Gallagher & Co.||Aon & Willis Towers Watson||Asset Acquisition||$3.57 Billion||May 2021|
|Altimeter Growth Corp.1||Grab||Merger||$39.6 Billion||April 2021|
|Microsoft||Nuance Communication||Acquisition||$19.7 Billion||April 2021|
|Thermo Fisher Scientific Inc.||PPD||Acquisition||$17.4 Billion||April 2021|
|Thoma Bravo||Proofpoint||Acquisition||$12.4 Billion||April 2021|
|Webster Financial Corporation||Sterling Bancorp||Merger||$10.3 Billion||April 2021|
|Humana Inc||Kindred at Home||60% Financial Stake||$8.1 Billion||April 2021|
|Standard Industries Holdings||W.R Grace||Acquisition||$7 Billion||April 2021|
|Nestle||The Bountiful Company||Acquisition||$5.75 Billion||April 2021|
|GE Capital Aviation Service||AerCap Holdings||Aviation Financing & Leasing Company||$30 Billion||March 2021|
|Canadian Pacific Railway Ltd.||Kansas City Southern||Railway Transportation||$29 Billion||March 2021|
|Rogers Communications||Shaw Communications||Telecommunication||$26 Billion||March 2021|
Source: Intellizence M&A Dataset
An M&A Frenzy is Heating Up
The mergers and acquisitions craze is being fueled by a few catalysts:
- Low interest rates, which significantly ease the burden of the costs associated with merging and acquiring, as taking on debt to facilitate the acquisition or merger is inexpensive.
- The rise of special-purpose acquisition companies (SPACs). These organizations raise money through an initial public offering (IPO) in order to buy other companies. There are currently some 539 SPACs, according to stockmarketmemba.com, and markets.businessinsider.com/ reports that they have raised more than $100 billion in 2021. Refinitv notes that SPACs were responsible for about 11% of global deals in May.
- Industry consolidation. We’ve seen megadeals in banking, media, and transportation. But an interesting deviation has occurred with big corporate deals between companies in adjacent sectors, or non-tech companies that are moving into the tech arena by buying technology companies. That just makes sense, as technology is a part of making almost every industry more innovative and efficient these days. Examples include Microsoft (MSFT) buying Nuance (NUAN) in a $16 billion deal, so that it can get into the healthcare technology business; and consumer electronics manufacturer Panasonic (PCRFY) agreeing to buy supply chain software company Blue Yonder in a $5.6 billion deal.
It’s expected that with the economy on warp recovery speed that M&A deals will continue to expand.
Anatomy of a Takeover Target
With intra-industry as well as inter-industry mergers rising, investors can take advantage of companies that look like good takeover targets. There are a few criteria that these potential acquisitions have in common, including these from Investopedia.com:
- Product or Service Niche
- Additional Financing Needed
- Clean Capital Structure
- Debt Refinance Possible
- Geographic Proximity
- Clean Operating History
- Enhances Shareholder Value
- Experienced Management
- Minimal Litigation Threats
- Expandable Margins
- Solid Distribution Network
Biotech: 9 Potential Takeover Targets
Right now, it seems that the biotech field is ripe for takeover targets. Some of the names being bandied about as potential acquisitions include:
TG Therapeutics (TGTX): New FDA approval for umbralisib to treat resistant follicular lymphoma and marginal zone lymphoma.
Clovis Oncology (CLVS): Rubraca drug for treatment of heritable cancers, with 15% sales growth.
Medigene (MGD1.DE/MDGEF): German company partnered with bluebird bio Inc. on TCR-modified T-cell programs for multiple indications, including intracellular tumor antigens that aren’t addressable with CAR-T therapeutics.
Allergy Therapeutics (AGY.L/AGYTF): U.K. firm (spun out of Glaxo) testing peanut allergy drug in human trials.
Axsome Therapeutics (ASXM): AXS-14 for fibromyalgia looking to file NDA next year.
Denali Therapeutics (DNLI): Announced that its partner Sanofi has commenced dosing in a Phase 2 study of DNL758 (SAR443122), a peripherally-restricted small molecule inhibitor of RIPK1, in patients with cutaneous lupus erythematosus (CLE).
Albireo Therapeutics (ALBO): Odevixibat candidate for the development of treatments for disorders associated with irregularities in bile acid biology. Awaiting approval for one indication (progressive familial intrahepatic cholestasis, or PFIC) in the second half of this year, and is undergoing Phase 3 trials for two others.
Verona Pharma (VRNA): Granted specialty pharmaceutical company Nuance Pharma the development and commercialization rights for its ensifentrine in the Greater China region. Ensifentrine can potentially alleviate respiratory symptoms like breathlessness and cough and treat inflammation related to chronic obstructive pulmonary disease (COPD) or viruses. The drug is currently being evaluated in a global Phase 3 study for maintenance treatment of COPD.
Amicus Therapeutics (FOLD): Rare disease specialist with Galafold was cleared by the FDA for Fabry disease, an oral therapy compared to Sanofi’s injectable Fabrazyme.
Of course, there are no guarantees that any of these companies will make a deal. But they might be worth a look.
And speaking of research, here are some M&A websites that are rated among the best, according to Dealroom.net:
Top 10 M&A News Sites
Nancy Zambell, Chief Analyst of the Financial Freedom Federation, has spent more than 30 years helping investors navigate the minefields of the financial industry. Nancy's book, Make Money Buying & Selling Stocks is an introduction for new investors and a reminder for experienced investors on how to profit in the stock market.Learn More
*This post has been updated from an original version.