6 Things That Make A Company An Attractive Acquisition Target

In “Attractive M&A Targets: Part 1 – What Do Buyers Look For?,” a new study by Intralinks® and the M&A Research Centre at Cass Business School in London, we sought to work out – once and for all – what makes a company an attractive acquisition target. Using 23 years’ worth of data, we examined almost 34,000 public and private companies, each with annual revenues of at least US$50 million.

Operationalize regulatory risk management.

The study identifies six measures which can be used to predict the probability of a target being acquired. These are: Growth, Profitability, Leverage, Size, Liquidity, and Valuation.

Here are six findings from our study:

1. Growth:
   Target companies have higher growth than non-targets. Over the entire time period (1992–2014), the growth of target companies is 2.4 percentage points higher than that of non-targets. The growth “premium” of targets becomes even higher during market downturns, recessions, and periods of economic uncertainty.
2. Profitability:
   Private target companies are more profitable than private non-targets, whereas public target companies are less profitable than public non-targets. Since 2000, the profitability of private targets is 1.2 percentage points higher than that of private non-targets, whereas profitability of public targets is 1.7 percentage points less than public non-targets. Since 2008, public targets are 3.3 percentage points less profitable than public non-targets.
3. Leverage:
   Private target companies are significantly more leveraged than private non-targets, while public targets have lower levels of leverage than public non-targets. Private target companies have over three times more leverage than private non-targets. Post-2008, public targets have 11% less leverage than public non-targets.
4. Size:
   Private target companies are significantly larger than private non-targets, whereas public targets are significantly smaller than public non-targets. Private targets are 63% larger than private non-targets. Public targets are 55% smaller than public non-targets.
5. Liquidity:
   Target companies have lower levels of liquidity than non-targets. Companies in the bottom two deciles for liquidity are, on average, 35% more likely to become acquisition targets in any given year than companies overall.
6. Valuation:
   Public target companies have lower valuation multiples than public non-targets. Public companies in the bottom three deciles for valuation are, on average, 30% more likely to become acquisition targets in any given year than public companies overall.

Key Insights:
Our research found that buyers are looking for significantly different characteristics in private vs. public companies. Since 2008, acquirers have preferred underperforming public firms, as these are more likely candidates for operational improvements and cost savings through merger synergies. Buyers also have been taking advantage of public companies whose valuations have fallen the most during market downturns.

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Intralinks accommodates different workflows and timelines by creating and aggregating sequential and parallel reports. Automatically generate notifications, centralize question and answer functions, and create tasks and assignments.

Intralinks also simplifies the process of aggregating, refining and submitting regulatory information. To support regulatory risk management, we provide tools for compliance with key regulatory processes that include:

• Consolidated recovery planning for certain large domestic bank holding companies
• Resolution planning
• Regulation AB II for asset-backed securities
• SEC 17g-5 for structured financial products
• Comprehensive capital analysis and review
• Dodd-Frank Act stress test