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March 31, 2014 – Comments (5) | RELATED TICKERS: ALLE , UTX , HON

I really like the concept of Stalk Talks over at Seeking Alpha.  I have seen investors generate a ton of interesting ideas by bouncing ideas off of each other.  Throwing quick ideas out there is a lot more time-efficient than writing and re-writing fancy articles.

Here's one that I wanted to toss out there for the fine folks of the CAPS community.  Takeover Targets.  Reuters put a great article about takeovers in the industrialsector today.  Here's the key section for me:

RIPE FOR A PICKUP?

Industrial companies reorganize through deals, which allow them to obtain growing products, realize cost savings and find other ways to augment their central businesses.

Such reshaping can include sales or spinoffs by the companies themselves, often in response to investor pressure, to focus on their central businesses. Dover Corp made such a move earlier this month with its spin-off of microphones maker Knowles Corp , while General Electric is exiting its private label credit card business.

Globally, acquisitions by all industrial companies slipped 8 percent last year, more steep than the 6 percent overall decline for global deals, according to Thomson Reuters data.

The value of acquisitions by 10 U.S.-based multi-line industrial companies fell last year to the lowest level since 1998, according to Thomson Reuters data.

"M&A is a core part of what industrials do and that's how they optimize their portfolios over time," said Kevin Toney, senior portfolio manager with American Century Investments. "My sense is the buyers wanted to buy, but maybe the prices just weren't there."

Because of the diverse lines of business for these manufacturers, potential targets exist in numerous sectors, including aerospace, security or climate control systems, healthcare products or electrical equipment.

Certainly, conditions look ripe for a deal pickup in many ways.

Analysts at Citi Research noted recently that among multi-industry companies, net debt stands at "attractive lows" of only 17 percent of total capital.

"The sector currently holds ample firepower for strategic deals, with a willingness to pull the trigger once the M&A climate improves," Citi analyst Deane Dray wrote in a research note earlier this month.

The lofty level of the stock market also could be a benefit to potential acquiring companies.

"The average buyer has a stock that has gone up a lot so they have a lot of currency," said Scott Davis, an analyst at Barclays. "I think we're going to see a lot more transactions using stock."

There is no shortage of eager buyers.

Honeywell's Chief Executive Dave Cote said at the conglomerate's investor day earlier this month that the company was planning on $10 billion in deals through 2018, more than double what the company spent the previous five years.

3M has expressed a willingness to spend "multi-billion dollars" on individual deals, more than it has in the past, as it eyes $5 billion to $10 billion in acquisitions through 2017.

Danaher Corp , which has cited $8 billion in "M&A capacity," is among the other companies expected to be on the prowl this year.

United Technologies last week became the latest company to make noise about bulking up through acquisitions.

Not yet two years removed from closing its Goodrich deal, executives said they did not foresee an acquisition anytime soon. But United Tech has set a target of $50 billion in revenue for its commercial buildings segment by 2020, recognizing that about $8 billion of $21 billion needed for that goal might have to come from acquisitions.

United Tech's targets could include security companies Allegion and Tyco International , and electrical and lighting systems company Hubbell Inc , according to Credit Suisse.

"We have demonstrated that we do very well on large deals," United Technologies Chief Executive Louis Chenevert told the investor conference, adding: "Some of you thought I overpaid on Goodrich. I don't think anybody thinks I overpaid today on Goodrich."

M&A pickup among U.S. conglomerates may be undercut by prices

The point of this post was to ask folks for ideas of potential takeover targets.  I think that any list of them has to start with the recent spinoff Allegion (ALLE)...which I currently own a small position in.  So fire away.

Jason

5 Comments – Post Your Own

#1) On April 03, 2014 at 10:44 AM, MKArch (99.70) wrote:

UTEK has a bleeding edge technology to enable the next generation of chips that M* once speculated could be a take over target for AMAT.

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#2) On April 07, 2014 at 9:35 AM, MKArch (99.70) wrote:

http://seekingalpha.com/article/2127373-upcoming-sallie-mae-spin-off-holds-promise-for-investors?ifp=0

 

I just saw this one Deej. I actually like the remnants of SLM as a pure play on private student loans. 

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#3) On April 09, 2014 at 11:27 AM, TMFDeej (99.25) wrote:

That is an interesting one, Mega.  I just gave it the thumbs up myself in CAPS the other day.  Thanks for sharing.

Jason

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#4) On April 09, 2014 at 11:28 AM, TMFDeej (99.25) wrote:

Oops, I mean MKArch.  Thanks again.

Jason

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#5) On April 10, 2014 at 6:40 PM, MKArch (99.70) wrote:

I went to this post from my following tab thinking SLM pertained ( I forgot this post was about potential take over targets). I saw you gave SLM the thumbs up later and figured your probably beat me to the punch.

I actually like the private student loan business as I think it serves need. From my FMD days I believe the payments are deferred until graduation. These loans could take a tremendous financial burdon off of parents and if in return parents let kids stay home for a while after graduation the burdon on the students could be managed as well. It's also an incentive to make sure students pay attention to the return on the cost of their education. IE: make sure they're going to be able to make enough money to pay for their education. IMO the scapegoating of this industry just means less competition and lower expectations which could be good for shareholders in the long run. 

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