When the recession hit Wall Street back in 2008, spend-happy companies were suddenly scared into saving. As a result, there's now a global cash pile of $4.3 trillion just sitting on corporate balance sheets. With the recovery well under way, experts expect to see companies start putting that cash to use -- meaning that 2011 could well be the biggest year for M&A activity since 2007.
According to data sourced by Thomson Reuters, Asian companies have the largest cash stockpiles, at $1.88 trillion versus the United States' $1.3 trillion and Europe's $1.17 trillion. With economies booming in the Far East, most takeover activity is expected to come from that region.
And with interest rates currently near zero in developed nations, U.S. and European firms are earning almost nothing on their cash -- so they're likely to seek out takeover opportunities as a means of seeing higher returns.
When acquiring companies make a tender offer on a target, they usually pay a premium for the stock -- meaning they offer more than fair market value for it. This makes acquisition targets particularly attractive to investors. But how do you identify them? One way is to look at the cash the takeover target is generating.
When one company buys another, it can use the cash held by the target company to help offset the cost of buying that same company. In other words, the more effective the target company is with converting income into cash, the more attractive it is as a takeover target.
To capitalize on this idea, we started with a universe of about 250 rumored takeover targets (the complete list can be accessed here). We then collected data on growth projections and cashflow and narrowed down the list to only focus on those companies with a track record of rapid cash flow and net income growth.
Here's a list of takeover targets with excellent growth prospects. Do you think these companies make attractive acquisitions for your portfolio? Use the links below to analyze.
|
Company |
Source of Takeover Rumor |
Earnings Per Share (EPS) Performance |
Cashflow Growth |
|---|---|---|---|
|
Celgene |
Morningstar |
EPS grew by 60.68% over the last five years vs. the industry average at 23.78%. EPS projected to grow by 25.79% over the next five years, outperforming the industry average of 16.68% |
Cashflow generated by the company grew by 70.62% over the last five years, beating the industry average of 25.56% |
|
salesforce.com |
Business Insider |
EPS grew by 55.18% over the last five years vs. the industry average at 16.57%. EPS projected to grow by 27.65% over the next five years, outperforming the industry average of 13.34% |
Cashflow generated by the company grew by 66.84% over the last five years, beating the industry average of 17.04% |
|
Endo Pharmaceuticals Holdings |
Thunderstorm Capital |
EPS grew by 16.02% over the last five years vs. the industry average at 9.12%. EPS projected to grow by 13.72% over the next five years, outperforming the industry average of 5.82% |
Cashflow generated by the company grew by 17.63% over the last five years, beating the industry average of 12.14% |
|
Focus Media Holding |
Barrons |
EPS grew by 105.41% over the last five years vs. the industry average at 7.66%. EPS projected to grow by 20.% over the next five years, outperforming the industry average of 13.69% |
Cashflow generated by the company grew by 140.58% over the last five years, beating the industry average of 9.64% |
|
Petrohawk Energy |
UBS |
EPS grew by 59.01% over the last five years vs. the industry average at 3.31%. EPS projected to grow by 18.25% over the next five years, outperforming the industry average of 11.06% |
Cashflow generated by the company grew by 105.05% over the last five years, beating the industry average of 9.8% |
|
Heartland Payment Systems |
Street Insider |
EPS grew by 38.58% over the last five years vs. the industry average at 19.34%. EPS projected to grow by 16.25% over the next five years, outperforming the industry average of 13.66% |
Cashflow generated by the company grew by 20.73% over the last five years, beating the industry average of 15.84% |
|
Jinpan International |
Nasdaq.com Community |
EPS grew by 46.36% over the last five years vs. the industry average at 17.62%. EPS projected to grow by 25.% over the next five years, outperforming the industry average of 14.4% |
Cashflow generated by the company grew by 50.9% over the last five years, beating the industry average of 13.94% |
|
Mosaic |
Street Insider |
EPS grew by 31.53% over the last five years vs. the industry average at 7.22%. EPS projected to grow by 14.3% over the next five years, outperforming the industry average of 14.09% |
Cashflow generated by the company grew by 27.46% over the last five years, beating the industry average of 7.25% |
|
Potash Corp. of Saskatchewan |
Street Insider |
EPS grew by 29.28% over the last five years vs. the industry average at 7.22%. EPS projected to grow by 24.6% over the next five years, outperforming the industry average of 14.09% |
Cashflow generated by the company grew by 20.27% over the last five years, beating the industry average of 7.25% |
|
Varian Semiconductor Equipment Associates |
UBS |
EPS grew by 19.96% over the last five years vs. the industry average at 7.24%. EPS projected to grow by 20.% over the next five years, outperforming the industry average of 14.75% |
Cashflow generated by the company grew by 15.65% over the last five years, beating the industry average of 4.49% |
All data sourced from Fidelity. The list has been sorted alphabetically.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
