Since the start of the year we've seen a number of takeover offers, which may suggest that the rest of this year and the next is building up for more. Buyers of companies are the same as buyers of property and stocks. The general economic climate sets the tone.
Think back to only a few short years ago in 2010 -2011 when every other week another EU country was on the verge of financial collapse and gold was riding high on the fear of economic contagion spreading.
Companies start buying other companies when the climate is right and before the target company grows too much. IPOs signal a return of the capital market because the shareholders of the companies to float see better opportunities in selling their positions down or out into the market.
Yet it's the mergers and acquisitions growth that signals a stronger economy. Companies are willing to go out on a limb, secure financing, have capital raisings, etc. to secure the companies they want. Interestingly, it was the three-way takeover bidding in the "cheese wars" battle for control of Warrnambool Cheese & Butter Factory Company (ASX: WCB) late last year that rang the starting bell.
Next, Myer Holdings Ltd (ASX: MYR) attempted a "merger of equals" style takeover of David Jones Limited (ASX: DJS) with no real premium in the price, which left the idea in the "we'll think about it" stage. That was until Woolworths Holdings Limited (Johannesburg: WHL) of South Africa rode into town with a $4 per share offer. The takeover isn't complete, but has challenged any other bidders to come in quickly if they are thinking of it.
Currently, we have takeover offers for Australand Property Group (ASX: ALZ) and Goodman Fielder Ltd (ASX: GFF).
Financial services company Credit Suisse has put together a list of companies that could be ripe for takeover offers. Here are three from the list.
Adelaide Brighton Ltd (ASX: ABC): Building materials producer
Up about 3% in the last six months to $3.82, it has a 15.9 PE and a 4.5% dividend yield. Good profit margins and decent return on equity.
Incitec Pivot Limited (ASX: IPL): Industrial chemicals and commercial explosives producer
It hit a recent peak of about $3.20 before heading down to $2.91. Its PE is 15.7 and the dividend yield is 3.3%.
Echo Entertainment Group Ltd (ASX: EGP): Casino operator
Owner of The Star casino in Sydney as well as others like The Treasury in Brisbane and Jupiters in the Gold Coast. Possible takeover suitors may be overseas casino companies looking for bigger Australian footprint. Its PE is 17.5 and the dividend yield is 2.5%.
Foolish takeaway
At this stage, none of these companies have received takeover offers, so investors shouldn't rush in without doing your regular stock research before buying. Always buy into quality and if a takeover comes, consider it a kicker on the good hand you hold.
