Takeover fever is gripping our market as this calendar year is proving to be the best start for Merger and Acquisitions (M&A) activity since 2007, according the data from Dealogic that was reported in the Australian Financial Review.
The report stated this 2018 had begun with a bang with announced M&A deals on our market hitting US39.9 billion as at 8 May, 2018.
This may be good news for fee-loving investment bankers but it’s also good news for investors as the jump in takeovers will support the ongoing bull market. The jump in large M&A was something I had predicted in an article at the end of 2017 when Westfield Corp Ltd (ASX: WFD) become a target.
But don’t get too excited yet. A number of big M&A prospects that were recently announced may not be completed as they are subject to a number of conditions. These include takeover bids for energy company Santos Ltd (ASX: STO) and hospital operator Healthscope Ltd (ASX: HSO).
Companies are cashed up as they became the fiscal conservatives that the Liberal Party would be proud of. They are starting to loosen their purse strings but most, like Australia and New Zealand Banking Group (ASX: ANZ) and Incitec Pivot Limited (ASX: IPL), are spending their cash on share buybacks.
I suspect the focus will be increasingly on acquisitions as long as no black swans emerge to rock global markets.
The falling Australian dollar is also likely to make ASX targets more appealing to foreign raiders, particularly once the Aussie starts to stabilise around the low US70 cent mark, which I am expecting.
There’s a range of potential M&A targets too from embattled retailer Myer Holdings Ltd (ASX: MYR) to underperforming global logistics company Brambles Limited (ASX: BXB) and fertility clinic operator Monash IVF Group Ltd (ASX: MVF).
But as most investors know, trying to ride the M&A boom by picking the next takeover target is a mug’s game. Investors are much better off buying Macquarie Group Ltd (ASX: MQG) as it is a major dealmaker in this space.
Shares in Macquarie have rallied hard since its strong profit results and some may feel that its $113.80 per share price tag is a little high, but I suspect we will see the stock run higher as market conditions are very supportive for its earnings growth.
But Macquarie isn’t the only large cap that is well placed to outperform the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index this year. The experts at the Motley Fool have picked three of their best blue-chip ideas for 2018.
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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Brambles Limited, and Macquarie Group Limited. The Motley Fool Australia has recommended Monash IVF Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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