The buyout-rumor knitting circle was giddy last week. Word leaked that Motley Fool Stock Advisor core stock Hasbro
The toy giant ultimately squashed the rumors, but it got me and my fellow Stock Advisor analysts thinking about which company could be the next buyout target for the billions of dollars of private equity cash sitting on the sidelines.
Here are some ideas.
Matthew Argersinger, analyst
Content is King, or at least that's the idea you might get from a quick peek at our Stock Advisor scorecard. Hasbro is just one example of a rich library of entertainment content that's just waiting for management (or others) to monetize in newer and bigger ways.
Whether it's story-based games such as Mafia, strategy games such as Civilization, or first-person-shooters such as Bioshock, Take-Two Interactive's
Yet Take-Two has suffered from a history of managerial missteps and inconsistent profitability. It is no surprise then that it's been the subject of buyout attempts in the past, including a fairly rancorous attempt by rival Electronic Arts back in 2008. That deal fell through, but private equity titan Carl Icahn recently bought a 10% stake and muscled his way onto Take-Two's board.
Only time will tell if Icahn's domineering presence results in a take-private deal. But with such valuable assets and a severely beaten-down stock price -- buyout or not -- I think Take-Two is a market-beater from here.
Andy Cross, associate advisor
Along with content, cash is also king -- at least in the private equity world. That's why buyout firms often target companies that generate prodigious cash flows that can go toward paying down hefty borrowings or cashing out investors. But profitable, well-run companies make not only good acquisition candidates but also solid long-term investments. Just the kind Tom and David Gardner look for at Stock Advisor.
One stock I've been watching is Neogen
Bryan White, analyst
Private equity firms have it tougher today than they did during the past decade when growth in asset prices and cash flow was abundant. Leveraged investments made during the credit boom paid off pretty well, but now the outlook looks much different. That said, two areas in the health-care space where growth appears attractive are health information technology (IT) companies and staffing firms for health-care facilities. And that growth could attract some eager private equity eyeballs.
While most health IT names have run up, Athenahealth
One of the problems with expanding health insurance to all Americans is that demand for services may far outstrip supply of physicians and nurses. Cross Country Healthcare stands to benefit because facilities will need to staff before the full expansion of coverage takes place around 2014. With robust cash flows and limited capital expenditures, Cross Country could be just what the doctor ordered for private equity investors.
Alex Scherer, associate advisor
Transaction processors always seem to garner interest from private equity investors. Fidelity National Information Services
One company in this space that I've had my eye on for a few years is Global Cash Access
Global Cash still has $250 million in debt from the original LBO, but supports the interest payments easily. At only 7 times enterprise value to free cash flow and room for more debt if needed, Global cash could be one to ring the private equity cash register.
For more market-beating stock ideas, whether through buyouts or long-term appreciation, join Motley Fool co-founders Tom and David Gardner at Stock Advisor. You can also follow the Stock Advisor team on Twitter.
Andy Cross compiled this roundtable. He doesn't own shares in any company mentioned. Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Electronic Arts and Hasbro are Motley Fool Stock Advisor choices. The Motley Fool has a disclosure policy.