The merger and acquisition frenzy among ASX companies has only just started, according to a trio of fund managers.
Yes, this week's $39 billion union of Afterpay Ltd (ASX: APT) and Square Inc (NYSE: SQ) was the biggest takeover deal in Australian history.
And already a massive $148 billion worth of merger and acquisition transactions have been announced in the first half of this year, according to Wilson Asset Management portfolio managers Matthew Haupt, Catriona Burns and Oscar Oberg.
But they reckon takeover fever hasn't peaked yet.
"We believe we are only at the beginning of the wave of M&A activity which we expect will last for another 6 to 12 months," the Wilson managers wrote in a memo to clients.
"We continue to screen laggards in the equity market with potential for a valuation uplift from strategic investments such as M&A."
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Why mergers can be beneficial
The Wilson fund managers pointed out takeovers can be a win-win for many different reasons.
Their WAM Leaders Ltd (ASX: WLE) fund holds 2 ASX shares that are a prime example.
"Energy companies Santos Ltd (ASX: STO) and Oil Search Ltd (ASX: OSH) were recently spotlighted in the media for their planned merger," the Wilson memo stated.
"The merger is an example of companies using M&A to gain scale, relevance in new markets and a new opportunity pipeline."
Compared to this, the blockbuster Afterpay-Square deal is beneficial for entirely different drivers.
"The recently announced takeover deal by California-based digital payments company Square for buy now, pay later platform Afterpay indicates the diversification opportunities companies are seeing in M&A activity, even those already trading at record multiples," the fund managers wrote.
"We expect to see such consolidation take place on a global scale."
Who else could join the M&A frenzy?
For investors looking for a win from the next acquisition announcement, the Wilson trio singled out a couple of ASX stocks ripe for such opportunities.
"As beneficiaries of the coronavirus-induced lockdowns, there are companies that can use M&A activity to capitalise on their healthy balance sheets," the Wilson team wrote.
"Companies such as media and information service provider News Corporation (ASX: NWS) and medical diagnostics provider Sonic Healthcare Limited (ASX: SHL) are examples of WAM Leaders' holdings with strong balance sheets with upside potential in the event of acquisition activity."
News Corp on Friday revealed its best yearly result since 2013, raking in US$9.4 billion of revenue and a profit of US$389 million for the 2021 financial year.
Its ASX shares were up almost 3% in early trade Friday morning.
Sonic Healthcare saw a 33% jump in revenue and a whopping 166% boost in net profit for the first half of the 2021 financial year.
Credit Suisse named shares for the pathology and radiology provider as "outperform" this week, lifting the price target to $43.50.
On Friday morning they were going for $40.75. Sonic shares have gained almost 24% this year.
