M&A Sets Record In First Half Of 2015

7/13/2015


In the first six months of 2015, the total value of announced U.S. mergers and acquisitions surged 60% to $1.01 trillion — the greatest first-half activity since Thomson Reuters began tracking the data in 1980. Deal activity counts announced — but not necessarily accepted — offers.

M&A was especially pervasive in the health-care sector. Deal volume targeting U.S. health-care companies soared 53% to $253.9 billion — or 25% of all announced deals. The average takeover premium for U.S. health-care deals was 45%, versus the overall U.S. average of 32%.

Deal activity continues despite heightened risks. Opposition from U.S. regulators has scuttled at least three acquisitions this year, including Comcast's ($62; CMCSa) decision to abandon its $45.2 billion acquisition of Time Warner Cable ($180; TWC). For deals that don't run afoul with regulators, the run-up in stock prices increases the danger of overpaying.

Investors may also be growing skeptical of splashy acquisitions. Shares of Aetna, Centene ($71; CNC), and Intel ($30; INTC) have slumped since the companies agreed to make multibillion dollar, transformational deals since June 1. The market has recently reacted more favorably to smaller, bolt-on acquisitions, such as CVS Health's ($104; CVS) purchase of Target's ($83; TGT) pharmacy business for $1.9 billion.

But the aggressive deal making shows no signs of abating, as companies rush to take on cheap debt ahead of the Federal Reserve's looming rate hike. Rising stock prices have also increased buying power, which could fuel more takeovers as interest rates begin to creep higher.

The enterprise ratio is one indicator of a company's takeover appeal. It estimates a company's total value (before any takeover premium) relative to the underlying operating profits that can help service any debt needed to fund the deal. The enterprise ratio equals enterprise value (debt and stock-market value minus cash) divided by EBITDA (earnings before interest, taxes, debt, and amortization).

The enterprise ratio has not worked recently for S&P 500 stocks. But it remains the second-best Quadrix factor over the past 10 years and since December 1994.

Stocks in the table below are potential takeover candidates based on their attractive enterprise ratios.

TAKEOVER CANDIDATES
The following recommended stocks have midsized market values that make them reasonably digestible for potential suitors. They also enjoy above-average Quadrix scores for enterprise ratio, a key measure of takeover appeal. The enterprise ratio equals enterprise value (debt and stock-market value minus cash) divided by EBITDA (earnings before interest, taxes, debt, and amortization).
Market
Value
($Bil.)
---- Enterprise Ratio ----
YTD
Price
Change
(%)
Quadrix Scores
Company
(Price; Ticker)
Stock's
Ratio
S&P 1500
Industry
Median
Stock's
Quadrix
Rank
Value
Overall
Industry
Alaska Air
($66; ALK)
8.7
6.3
6.3
84
11
83
95
Airlines
CDW
($34; CDW)
5.9
9.1
6.9
56
(3)
77
91
Tech Distrib.
Foot Locker
($69; FL)
9.8
9.0
7.8
62
21
58
94
Apparel
Goodyear Tire
($29; GT)
8.0
5.6
5.6
87
5
94
98
Tires
Lear
($103; LEA)
8.2
7.1
10.2
76
14
87
99
Auto Parts
Nvidia
($20; NVDA)
10.8
7.5
13.1
72
1
77
81
Semiconduct.
United Rentals
($80; URI)
7.9
5.9
10.4
85
(18)
92
91
Trading Cos.
Quadrix scores are percentile ranks, with 100 the best.

Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com