Study can predict ‘M&A attractiveness’

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Companies in the energy sector are the most likely in the world to be acquisition targets, with the highest rate of acquisitions among private companies, a new study has revealed.

The study, which looks at, ‘what buyers look for’, found that private companies are most likely to become acquisition targets if they are large and fast-growing with high profitably, high leverage and low liquidity.  On the other hand, public companies are more likely to become targets if they are small, fast growing and with low profitability, low leverage, low liquidity and low valuation.

Speaking with Australasian Lawyer, Intralinks vice president, strategy & product marketing Philip Whitchelo said that energy and mining are the biggest targets in the Asia-Pacific region.

“Looking at the APAC region and Australia, we found that companies in the energy sector had the highest likelihood of becoming acquisition targets, whereas in Australia it was private companies in the materials, including metals and mining, sector,” he said.

A likely explanation, he said, is that these sectors are less likely to grow quickly organically due to the nature of assets.

“Companies operating in those sectors are naturally more likely to become targets than those operating in other sectors such as Consumer Products and Services,” Whitchelo said.

The results come from 23 years of data analysed from almost 34,000 companies worldwide and accumulate in an interactive, ‘M&A attractiveness’ calculator.

“People can use [it] to see how attractive a company is as an M&A target,” Whitchelo said.
“These are companies that are more likely to be sold and hence need legal and other advisory services associated with M&A events.

“In the model, high leverage and large size are the two most significant predictors of a private company becoming an acquisition target, whereas small size and low profitability are the two most significant predictors of a public company becoming an acquisition target.”

The study findings show that growth, profitability, leverage, size, liquidity and valuation, are effective measures in determining acquisition likelihood.