There were a lot of fireworks for investors in 2016, so you would be forgiven if you forgot how many big-time buyouts we saw last year.
But in the wake of the announced $ 30 billion acquisition of Actelion Ltd. ALIOY, -0.07% ATLN, +0.29% by Johnson & Johnson JNJ, +1.38% a few days ago, it’s worth revisiting the topic.
From the $ 26 billion buyout of LinkedIn by Microsoft Corp. MSFT, +2.35% to Dell/Silver Lake’s $ 60 billion move to take EMC private in the largest tech merger in history, 2016 was a banner year for buyouts. And while a few of those deals were to take companies private, as with EMC, the vast majority of deals were from corporations looking for strategic partners, like JNJ’s bid for Actelion.
In fact, data provider PitchBook estimated that corporate buyers shelled out a record $ 1.7 trillion in 2016 for U.S. and European mergers and acquisitions — about $ 8 of every $ 10 spent in M&A last year.
And why not? After all, corporate cash is at record levels approaching $ 2 trillion. And even though the Federal Reserve did bump up interest rates again in December, corporations with good credit ratings can get debt remarkably cheaply compared with historical norms.
A recent Deloitte report indicates that 2016 is only the beginning. When surveyed, 75% of corporate execs said they expect higher M&A volume in 2017 over 2016, and 64% expect deal values to increase as well. A mere 3% of respondents expect M&A volume to decline in 2017.
Top it off with a more favorable environment for mergers under a Republican administration, and 2017 should shape up to be a big year for acquisitions.
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So which picks are the juiciest morsels for bigger corporations looking to gobble up a competitor? Here are five to consider:
Some bigger names in cybersecurity tend to get more attention, but the lower profile and more digestible $ 2 billion market cap of CyberArk Software Ltd. CYBR, -0.60% makes it a better bet for a 2017 acquisition. CyberArk already has some big-name clients, such as Hershey Co. HSY, -0.15% Novartis AG NVS, +0.42% NOVN, +0.00% and Qualcomm Inc. QCOM, +0.35% but its share price has have suffered.
Competition has been fierce, and the company hasn’t lived up to the perhaps unrealistic expectations of some investors. However, CyberArk is one of the rare small-cap cybersecurity companies that is actually profitable — meaning a Big Tech player couldn’t just bolster its client list, but also add some material impact to the bottom line going forward.
Biotech stocks IBB, +0.88% suffered some serious pain from mid-2015 through mid-2016, but the industry has stabilized lately. While the EpiPen price-gouging claims that made big headlines last year rattled the industry, Election Day brought in a wave of Republicans less likely to be as aggressive with price controls. That adds up to high hopes for biotech M&A in 2017.
Among the candidates, I like Biogen Inc. BIIB, -0.24% best. Merck & Co. Inc. MRK, +0.90% and Allergan PLC AGN, +1.14% have already signaled interest, and a huge financial incentive for the CEO should motivate him to make that deal sooner rather than later.
I think there’s potential for GoPro Inc. GPRO, +0.40% to succeed as part of a larger technology company in a strategic acquisition. While GoPro has had profitability challenges, its bulletproof balance sheet helps ease the pain; GPRO has zero debt and roughly $ 225 million in cash on the books. While that may not sound like a lot, at a $ 1.4 billion market cap, that’s roughly 16% of its entire value.
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You don’t need a big fish like Apple Inc. AAPL, +0.01% for a buyout to transpire. If a midsize company like Garmin Ltd. GRMN, -0.16% or privately held drone giant DJI could find a way to streamline operations and rejuvenate GoPro, it could pay off big-time for all parties.
Chip-related companies were a big part of the buyout frenzy in 2016, including Japan’s SoftBank Corp. SFTBF, -1.07% 9984, +0.23% shelling out $ 32 billion for ARM Holdings and Qualcomm making a $ 47 billion bid for NXP Semiconductors NV NXPI, +0.64% As consolidation continues across the industry, Marvell Technology Group Ltd. MRVL, -0.20% remains a top semiconductor company to consider when ranking the most likely M&A targets of 2017. As a so-called “fabless” chip maker that outsources production, it’s pretty obvious how a larger rival could gain big efficiencies through a marriage with Marvell — and since the big semiconductor companies are only getting bigger, it’s just a matter of time before this $ 8 billion company is gobbled up.
Drugmaker Perrigo Co. PLC PRGO, +2.09% came close to being buyout bait after a hostile bid from Mylan NV MYL, +1.55% in 2015. However, in September, activist hedge fund Starboard Value disclosed a stake in the company — and that hints interest in Perrigo could heat up again. Starboard said “substantial opportunities exist” to boost shareholder value, including selling all or part of the business to a competitor. Fresh off the successful Yahoo! Inc. YHOO, -0.29% /Verizon Communications Inc. VZ, +0.98% deal, look to Starboard focusing on getting a Perrigo deal down in 2017.