Diary of a Private Investor

Six of the Best Takeover Targets in 2017

I am concluding this seasonal “Six of the Best” series with a little fun. Which UK listed companies might be acquired during 2017? I would never invest in a company solely because it might be a takeover target and ordinarily, I don’t pay too much attention to this aspect. However, post Brexit, with the pound falling against the dollar and to a lesser extent the euro, UK companies have been shown to be vulnerable to takeover approaches. My hunch is that this trend will continue into 2017.

Because of the weak pound, virtually every UK company is vulnerable, especially those with dollar earnings and therefore, picking six that are the most likely suspects has been challenging.

#1 ITV (ITV)
ITV seems like a prime takeover target to me. There is a new paradigm being formed in the way we watch TV through streaming, on-demand services. This will probably mean in a long-term decline in advertising revenues for ITV but, in the new TV world, content is king and ITV are a catch in that respect. They are a decent yielding share anyway but a takeover at a decent premium would be the icing on the cake.

Price at time of writing – Bid 205.5p, Offer 205.6p

#2 IG Group (IGG)
I try not to buy falling knives but have made an exception recently with IGG. The reason for the fall was relatively insignificant news about two consultation papers aimed at tightening up the regulations for financial broking firms, especially in relation to CFDs. The fall seems overdone and IGG shapes up well at this depressed share price level as an income share. Moreover, I can see them falling prey to the likes of Playtech (PTEC) which I also own shares in. Sector consolidation seems inevitable and IGG seem vulnerable.

Price at time of writing – Bid 495.1p, Offer 495.6p

#3 D4T4 Solutions (D4T4)
D4T4 are a minnow in relation to US software companies and data is one of the hot sectors right now. With a growing proportion of US earnings, I believe D4T4 could be swallowed up in 2017, hopefully at a decent premium.

Price at time of writing – Bid 188p, Offer 197p

#4 Beximco Pharmaceuticals (BXP)
BXP is a bit of a wild card. The company are expanding their footprint in the US and the EU with the range of both products and markets expanding. Notwithstanding the challenges of buying and integrating a company based in Bangladesh, BXP could be attractive to a larger generic drug company in either the US or the EU.

Price at time of writing – Bid 54.5p, Offer 57.5p

#5 Brainjuicer (BJU)
BJU are another company with an increasing level of earnings in the US. The company has been busy buying back its own shares in 2016 and it might only be a matter of time before a larger US player sees sufficient value to buy the whole company.

Price at time of writing – Bid 540p, Offer 560p

#6 Ideagen (IDEA)
IDEA sell software that supports corporate governance, another hot area in the software space. This is less a play on where earnings come from and more an assessment of the value of their IP. The shares are not cheap under normal circumstances but a depressed GBP could lead to an opportunistic bid.

Price at time of writing – Bid 68.5p, Offer 70p

It will be interesting to look back a year from now and see how many, if any, of these companies have succumbed to takeover bids and also, to see which other companies are taken over during the year, especially if the GBP remains weak in relation to the US and/or the Euro.

Now that markets have closed for 2016, I will turn into a spreadsheet nerd over the next couple of days and aim to post a quarterly portfolio update early in the new year.

In case you missed the earlier articles in this series:
Six of the Best Investment Lessons from 2016
Six of the Best Growth Shares in 2017
Six of the Best Income Shares in 2017

As ever, I enter the new year full of enthusiasm while aware that it will be a journey with many twists and turns.

Happy new year folks!
Simon

 

Disclosure – At the time of writing, I own shares in all of the companies mentioned in this article; ITV, IGG, PTEC, D4T4, BXP, BJU, IDEA

 

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