In our research at billionairesportfolio.com, we have looked at every private equity and corporate takeover deal going back more than 15-years. In our analysis of that history, we have found over ten statistically significant and predictive factors for companies that tend to be acquired.
At a high level, if you want to try to find companies that may be takeover targets, you want to look at stocks in sectors where there have been a lot of recent and historical takeover activity. Of course, a company that has little or no debt, plus lots of cash flow is very attractive. And if you can find a stock that satisfies those factors and is trading near a 52-week low, you have a very viable candidate.
Based on recent buyout activity this year, no sector is hotter for takeovers than retail . Still, a number of retail stocks are selling near their 52-week low and many of these companies have little or no debt, and lots of cash flow.
Below is a list of retail companies we think could be acquired for a significant premium in the next three to six months:
1) Aeropostale (ARO) has already seen private equity interest. Sycamore Partners recently acquired almost 9% of Aeropostale a month ago. Sycamore Partners has a history of taking companies private at a significant premium. Based on past takeover multiples in the retail sector, we believe Aeropostale could be acquired for as much as $15 a share. That would be a 66% premium to its current share price.
2) American Eagle Outfitters AEO +1.02% (AEO) has zero debt and currently is selling at very low multiples, based on enterprise value-to-free cash flow and enterprise value-to-ebitda. The company has a very strong brand name and is currently selling very close to its 52 week low of $13.14. When you consider previous takeover multiples in the retail sector, the incredible amount of free cash flow American Eagle generates (over $400 million last year), and the fact that they have zero debt, almost any private equity company should be interested in this stock. According to analysts, American Eagle is worth at least $20 on a takeover or a 52% premium from its share price today.
3) Body Central BODY -2.03% (BODY) is a retail company that focuses on young women’s apparel and accessories with stores located mostly in the east coast and south. The company has zero debt, a market cap of only $85 million and is selling right at its 52 week low of $5.15 (the stock price is currently $5.19). Based on previous takeover multiples in the retail sector analysts at Jeffries believe Body Central is worth more than $8 a shares on a buyout or a 54% premium from its share price today.
4) Francesca’s Holding Corp. (FRAN) is another female based accessory and clothing store with locations throughout the United States. The stock has zero debt and is currently selling near its 52-week low of $16.49 (the stock price is currently $17.08). Based on previous takeover multiples in the retail sector Francesca’s could be worth more than $26 on a takeover, or a 52% premium from its current share price.