Takeover targets

10th Sep '23 by M48

4 comments 536 reads

Have been mulling this week on why so few of the shares in my portfolio have received takeover offers. I’m not necessarily thinking takeover offers are always good, there’s clearly been some takeunder activity going on - but I have been questioning if I’m invested in the right type of stuff.

I’ve concluded 1) I have a bias toward investing in businesses that (I find) are easier to understand, like consumer related businesses I come across in everyday life. 2) I have a bias to higher ValueRank and/or overall StockRank shares. These have not been in vogue when it comes to M&A. Basically my portfolio is skewed and omitting a whole load of interesting businesses that are maybe more expensive. I don’t know if I’m the only one in this boat but suspect I’m not because I tend to think my biases are quite natural ones.

So I’ve tried to create a simple screen to find some new things to look at. Hoping this link works, it comes up with a shortlist of 50 shares. The fact that several of the ones listed have already received offers makes me hope I’m swimming in the right pool although I accept the offers may have helped suppress the ValueRank score to make the cut.

On the basis I may never understand these businesses or industries very well no matter how much research I do, I’ve looked to see if there is a fund or IT that I could invest in to get coverage of this area - but drawn a blank. Of course there are funds that hold these shares but if I buy them, I’m likely also buying more of the consumer/value stuff I already own, which I don’t want to do. So I’m minded to buy a selection of these shares, avoid the annual management charge, and reduce the risk by diversifying. To a degree the tried and tested Stocko algorithms are the management fee I’m paying for.

https://www.stockopedia.com/sc...

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Benson212

10th Sep '23

From my experience over the years, GADP (growth at a discounted price) shares are normally the most common takeover targets. I remember having the same thought back in 2016 when we had another high M&A period.

Here is a link to an old discussion:
https://www.stockopedia.com/co...

The links to some of the securities I tagged in the blog post are still working. You can then use the "print" drop-down menu to look at historic PDF reports and see if they also meet your criteria before the takeover.

However, in my opinion, I don't think this is a good idea for long-run returns. You're taking punts on whether a stock will get bought out, rather than focusing on the factor returns that generate good long-term results e.g. VM/QM ranked shares. I've had a fair number of buyouts over the years: Arm Holdings (LON:ARM^I16) Avesco (LON:AVS^L16) , Jimmy Choo (LON:CHOO^K17) AVEVA (LON:AVV^A23), Homeserve (LON:HSV^A23) Harvey Nash (LON:HVN^L18), Fenner (LON:FENR^F18) to name a few, but I have never actively sought after the buyout potential. I think if you just invest in undervalued, good quality shares, it will happen over time.

BnB

With due deference to the excellent advice in your first reply, on the basis that I’ve had a lot of offers in the last 12 months and that I hold a good number of your shortlist, you might be in the right ballpark. Or perhaps the good prospects have all been bought and my remaining holdings are all duds!

However, there are more on the list that I don’t hold - typically because they are less appealing to me in terms of management, product, growth, sector and/or even, dare I say it, price. So, you’ll need to sort the wheat from the chaff according to your own filters. As I mentioned last week, look for well-defended niches with structural growth.

M48

Benson. Thanks for reply and I agree with what you’re saying. I guess I didn’t preface my post with the fact I do have a pretty diverse portfolio so to get so few takeovers has made me stop and think a bit. I agree buying something in the hope mainly of a takeover is likely to prove fruitless or frustrating. I do hold a lot of stuff that I think has good growth at a decent price, and I’d much rather hold them for a long time than get a takeover for a modest premium. However the current raft of takeovers does suggest there’s a gaggle of companies that an acquirer has decided was mispriced and I’ve with hindsight largely been ignoring them because of my biases. My (diverse, but currently skewed) portfolio will be much better balanced if I address that, whether there’s takeover activity down the line or not.

Thanks (again) BnB. Let’s hope for both of us it’s not just the duds that are left! Yes, I now need to sort the wheat and chaff. Thanks for posting

Takeover targets

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M48

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