Try out the calculator and find out how attractive a company is to buyers
Professor Scott Moeller, Director, M&A Research Centre, Cass Business School, City University London
In “Attractive M&A Targets: Part 1 – What Do Buyers Look For?,” a new study by Intralinks® and the M&A Research Centre at Cass Business School in London, we sought to work out – once and for all – what makes a company an attractive acquisition target. Using 23 years’ worth of data, we examined almost 34,000 public and private companies, each with annual revenues of at least US$50 million.
The study identifies six measures which can be used to predict the probability of a target being acquired. These are: Growth, Profitability, Leverage, Size, Liquidity and Valuation. Intralinks has also developed an online calculator using the methodology and measures in the study, so companies can work out how attractive they are to potential buyers. I recommend you try it!
Here are six findings from our study that you’ll see reflected in the online calculator:
- Growth: Target companies have higher growth than non-targets. Our study finds that over the entire time period (from 1992 to 2014) the growth of target companies is 2.4 percentage points higher than that of non-targets. The growth “premium” of targets becomes even higher during market downturns, recessions and periods of economic uncertainty.
- Profitability: Private target companies are more profitable than private non-targets, whereas public target companies are less profitable than public non-targets. Since 2000, the profitability of private targets is 1.2 percentage points higher than that of private non-targets, whereas profitability of public targets is 1.7 percentage points less than public non-targets. Since 2008, public targets are 3.3 percentage points less profitable than public non-targets.
- Leverage: Private target companies are significantly more leveraged than private non-targets, while public targets have lower levels of leverage than public non-targets. Private target companies have over three times more leverage than private non-targets. Post-2008, public targets have 11% less leverage than public non-targets.
- Size: Private target companies are significantly larger than private non-targets, whereas public targets are significantly smaller than public non-targets. Private targets are 63% larger than private non-targets. Public targets are 55% smaller than public non-targets.
- Liquidity: Target companies have lower levels of liquidity than non-targets. Companies in the bottom two deciles for liquidity are on average 35% more likely to become acquisition targets in any given year than companies overall.
- Valuation: Public target companies have lower valuation multiples than public non-targets. Public companies in the bottom three deciles for valuation are on average 30% more likely to become acquisition targets in any given year than public companies overall.
Our research found that buyers are looking for significantly different characteristics in private vs. public companies. Since 2008, acquirers have preferred underperforming public firms, as underperforming public companies are more likely candidates for operational improvements and cost savings through merger synergies. Buyers also have been taking advantage of public companies whose valuations have fallen the most during market downturns.
To find out more, you can download a copy of the report and try out the calculator here.