Last week saw a compelling takeover offer for Pacific Brands Limited (ASX: PBG) by American company, Hanes Brands. While it is rarely wise to buy a stock based on its potential to be taken over alone, there are two reasons why takeovers could be more plentiful going forward.
First, the Australian dollar may be in a short-term uptrend, but most forecasts have it falling to the 70 US cents mark longer term. That makes deal making funded by deep-pocketed overseas buyers more likely.
Second, Australia has strong local companies that can benefit from additional resources, either to grow domestically or expand offshore.
With those factors in mind, here are some potential takeover targets.
iSelect Ltd (ASX: ISU) has had a tumultuous time during its short history on the ASX, with profit downgrades and management changes contributing to wild share price swings.
However, the company still has a strong share in the comparison market for health insurance, electricity, gas and more recently home loans or broadband. It also has strong value in its data, with users of the company’s services required to fill in valuable demographic data in order to get a comparison.
A company like comparethemarket.com, owned by the UK-based BGL group, could be an acquirer as a means to consolidate market share. Similarly, another company with expertise in vertical search or price comparison looking to establish a local presence quickly could also be a logical buyer.
With ownership of most of the nation’s iconic beer brands progressively going offshore over the past few decades, it is reasonable to assume that there will be interest in wine maker Treasury Wine Estates Ltd (ASX: TWE).
The company has already fended off low-ball private equity offers, but a higher bid may be forthcoming in the future. The recent share price run up has taken the market capitalisation close to $7 billion, making a tilt at the company less likely in the short-term.
However, huge global alcoholic beverage companies like Diageo Plc as well as newer players like Beijing Yangjing Brewery Company or Tsingtao Brewery Company might be drawn to the opportunity to take Treasury’s market leading brands and grow them using their global market reach. A strategic stake in the company by a larger peer could also see the share price spike.
Luxury handbag and accessory designer and retailer OrotonGroup Limited (ASX: ORL) could also find its way into the portfolio of a leading global brand. With a market capitalisation of less than $115 million, it would represent a (comparatively) small investment for a large company with a focus on premium women’s fashion.
The attraction would be parlaying the appeal of a small Australian fashion brand to the high end market globally. The low penetration of the brand could prove an attractive selling point, as an acquirer could position Oroton as a niche luxury item in overseas markets. This approach has proved successful for other iconic Australian brands including R.M. Williams and Seafolly.
You should never invest solely on the basis of takeover potential, but if you can identify trends from the past and why a company might be attractive to an overseas acquirer, it makes it more likely that you can find those stocks that are ripe for a takeover attempt.