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Buyout or Sellout?

By Rich Duprey - Updated Apr 5, 2017 at 7:56PM

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Seven companies with the urge to merge, but which deals will be the ones to work out?

From tiny acquisitions to massive conglomerate combinations, Wall Street's urge to merge remains strong. How can we tell the dealmakers from the dealbreakers?

Breaking down the buildup
To help, we'll turn to the 120,000-plus investors in Motley Fool CAPS. Our data suggests that top-rated stocks offer the best opportunity to capture the best returns. A combination of two companies with high CAPS ratings should bode well for the new firm's future results, while a high-rated company that joins a lower-rated one may benefit one set of investors more than the other.

Despite troubles in the capital markets, the deals won't stop; they simply might involve more stock and less cash. Here are a handful of recently announced deals, and the ratings for each participating company on CAPS' five-star scale (when available):

Acquirer

CAPS Rating
(5 max)

Target

CAPS Rating
(5 max)

Deal Price

Abbott Laboratories (NYSE:ABT)

****

Ibis Biosciences from Isis Pharmaceuticals (NASDAQ:ISIS)

****

$175 million

Autodesk (NASDAQ:ADSK)

****

ALGOR

NR

$34 million

EMS Technologies

***

Formation

NR

$55 million

Investors Bancorp (NASDAQ:ISBC)

*

American Bancorp of NJ

*

$140 million

Brown & Brown (NYSE:BRO)

***

Charter Insurance Services

NR

undisclosed

Fidelity National Financial (NYSE:FNF)

**

Title Insurance Underwriters of LandAmerican Financial

NR

undisclosed

TransDigm Group (NYSE:TDG)

*****

Aircraft Parts

NR

$68 million

CAPS ratings courtesy of Motley Fool CAPS. NR = not rated.

A prescription for growth
Ibis has been a money-losing division for Isis Pharmaceuticals, and the cash influx it will receive from Abbott Labs will enable the pharmaceutical to focus more on its pipeline of drugs. For its part, Abbott doesn't see an impact to earnings this year or next from the purchase, but it will allow it to focus on hospital-acquired infections, which has been an area of high interest. CAPS member SecretCzar had mixed emotions about Isis back in October:

Mixed emotions on this one since all Income relies on license agreements, contracts, government grants (i.e., prefer cash and consumer staples at such times). Possibly a bad call if we truly enter a recession-regardless of how much "...is in the pipe line". Not for the faint of heart. I sold out myself. In the near term, stock will trade in an active range and likely end up higher. If times get tough, however, this could rapidly change (for the worse). Still, if the economy improves, could be a great value.

Yet CAPS member makinmoney11 had no such reservations about Abbott Labs, believing its product pipeline would keep it moving forward:

Expecting sales and earnings growth to be driven by improving market positions in key growth areas, a better product pipeline (Humira, Kaletra, Tricor, Omnicef, Simdax, vicodin, and Simcor), and increasing demand for the company's innovative medical devices and drugs...Also attractively priced.

Building bridges
Primarily providing software to the construction, engineering, and architectural industries, Autodesk has been garnering attention lately for the use of its software in animated films and video games as well. While the latter industries have proved fairly recession-resistant, CAPS member davincisolari feels that Autodesk is too tied to the building trades to win right now. Yet that exact same exposure makes CAPS All-Star valueandprice believe that Autodesk is essential: "A pick and shovel play. Will benefit from engineering/construction spending."

A value-added offer
What's your take on these deals? Let us know on Motley Fool CAPS. While you're there, you can start your own research on these or other stocks. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page.

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

TransDigm Group is a Motley Fool Hidden Gems pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy has an urge to make an apple pie.

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Stocks Mentioned

Abbott Laboratories Stock Quote
Abbott Laboratories
ABT
$110.49 (0.20%) $0.22
Autodesk, Inc. Stock Quote
Autodesk, Inc.
ADSK
$227.26 (0.41%) $0.94
Ionis Pharmaceuticals, Inc. Stock Quote
Ionis Pharmaceuticals, Inc.
IONS
$43.44 (-5.79%) $-2.67
TransDigm Group Incorporated Stock Quote
TransDigm Group Incorporated
TDG
$661.50 (-0.69%) $-4.56
Fidelity National Financial, Inc. Stock Quote
Fidelity National Financial, Inc.
FNF
$40.33 (1.33%) $0.53
Brown & Brown, Inc. Stock Quote
Brown & Brown, Inc.
BRO
$66.54 (0.26%) $0.17
Investors Bancorp, Inc. Stock Quote
Investors Bancorp, Inc.
ISBC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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