By Jeff Reeves
This could be a very bullish sign, as it signals that big corporations and private equity firms have cash to burn, as well as optimism that they will get a good price at current valuations. Read “Buffett unleashes the ultimate Wall Street racket.”
Some investors are wondering how to benefit from this trend. The simplest and most dramatic way is to own a sought-after stock that is offered a nice premium over its current share price, then getting an instant pop.
While there's no sure way to know who is going to bid for what, a little logic and research can put you in picks that are likely merger or acquisition candidates.
So what other companies seem to have a buyout in their future? Here are a few ideas:
Beam Inc. /zigman2/quotes/216229751/composite BEAM -7.06% a spirits purveyor, has been making headlines recently for an ill-advised (and eventually reversed) move to cut the alcohol content in its Maker's Mark bourbon . But don't believe the hype — it would take some serious missteps to damage the brand power at Beam with its lineup of Jim Beam bourbon, Courvoisier cognac and Sauza tequila.
Ever since conglomerate Fortune Brands split its disparate businesses up in 2011, there has been speculation that the spinoff makes Beam ripe for acquisition.
And that's logical, because like coffee, the spirits and alcohol game is a highly consolidated one with a few big players. Global heavyweight Diageo /zigman2/quotes/208129584/composite DEO -0.66% recently has been gunning to acquire Cuervo tequila , but dropped its bid a few months ago. However, Beam has a tequila brand in Sauza that could be attractive to Diageo. Also consider the brewing space, which continues to get smaller. Anheuser-Busch InBev /zigman2/quotes/209225053/composite BUD +0.15% was formed in 2008 in a $52 billion mega-merger between the companies, and InBev now hopes to grow via a $21 billion takeover of Grupo Modelo.
Beam is no small fish, but with a market cap under $10 billion, it is a fraction of some of the bigger players in the alcohol space and could be a nice target.
Steris /zigman2/quotes/203973646/composite STE -1.39% is a small-cap medical company that produces surgical products and anti-infection medication, among other things. It also has a small footprint in skin-care products for consumers.
There is perhaps no industry more accustomed to big-time buyouts and mergers than medical products, biotech and pharma. Think back to 2009, when Pfizer paid a stunning $68 billion for rival Wyeth and sparked merger mania in Big Pharma. Think about the biotechs that are eagerly snapped up by larger health care companies for their product pipelines, such as GlaxoSmithKline's recent $3.6 billion buyout of Human Genome Sciences .
Steris is exactly the kind of company that healthcare giants could be gunning for. Maybe Johnson & Johnson /zigman2/quotes/201724570/composite JNJ -3.70% can use both the surgical products as well as Steris' line of antiseptic alcohol hand rubs. Maybe a mid-cap like St. Jude Medical that already has a big OR presence could capitalize from a merger with STE. Or maybe one of the big guys like Merck or Pfizer has to continue its neverending quest to replace lost revenue due to patent expiration.
Also a plus: Steris is a stable company with a double-digit five-year growth rate, so an investment here isn't as speculative as some of the others.
Unlike coffee and alcohol, which are relatively easy to understand, Huntsman /zigman2/quotes/202684633/composite HUN -1.53% is a chemicals company that traffics in polymers and adhesives. The uses are pretty specific and pretty boring — including insulation for refrigerated vehicles — but Huntsman has a long history and more than $11 billion in annual revenue. That's nothing to sneeze at.