The Trend

How to Screen for Takeover Targets



We all dream of uncovering buyout targets…

Once a deal hits the wire, stocks can soar overnight. So it’s no surprise then, that many investors spend considerable effort tracking them down.

Back in 2015, there were $4.3 trillion in deals, crushing a $4.29 trillion record set in 2007. Pfizer announced it would acquire Allergan for $160 billion. Dow Chemical and DuPont announced a $130 billion mega merger. AB Inbev announced a $107 billion deal with SABMiller. Then, in 2016, the global community saw another $1.7 trillion in deals.

All thanks to boardroom confidence, cheaper debt financing with interest rates at historic lows, and pressures to improve profitability, as we’ve noted.

And while biotech and technology firms saw their fair share of deals, so did the oil sector. 

In fact, over the last year, oil companies saw nearly $200 billion in deals, as crude oil prices stabilized and major producers agreed to production cuts.

Look at refineries for example. 


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Western Refining (WNR) completed the merger of the remaining 62% of North Tier Energy for $1.5 billion.  Tesoro acquired a refinery from Calumet Specialty Productions.  PBF Energy closed a $537.5 million deal for a refinery owned by Exxon Mobil. Then Tesoro announced it would acquire WNR in a $6.4 billion deal because WNR had a strong set of refining assets near the oil-heavy Bakken formation and Permian Basin.

So how do you uncover similar opportunity?

Be a hunter. Use your bullets sparingly and smart. Don’t rush to pull the trigger. And be aware of your surroundings at all times. In any given year, maybe 2% of all publicly traded companies will be taken over. You have better luck playing Black Jack.

Because of that, we need to look for stocks with attractive underlying fundamentals in takeover rich areas of the market, like biotech, tech, and oil. In biotech for example, companies are sitting on about $220 billion in cash, ready to pounce on smaller stocks with incredible opportunity, much like ACADIA Pharmaceuticals offers.

Two, we want to look at where deal flow is substantial, again like tech and biotech. In fact, ever since the early 1980s, healthcare has been an explosive arena for M&A deals given retiring baby boomers, newly insured Americans, and new innovation.

Any one can uncover a potential buyout target. But it takes a good deal of research to find one with a high likelihood of being among the 2% actually taken over.