BERWYN, Pa.--(BUSINESS WIRE)--Amid an economic slowdown, beautiful deals are still gleaming in the eyes of cash-rich companies on the prowl for acquisitions. By looking through the eyes of an acquirer in identifying potential targets, value investors can benefit from the “pop” in a to-be-acquired company’s stock when a takeover is announced or from the bargain share prices that result when a company is left at the M&A altar. That’s the conclusion of the latest Taking Stock commentary by members of the Core/Value Investing Team at Turner Investment Partners.Turner, an investment firm headquartered in Berwyn, Pennsylvania, publishes Taking Stock commentaries quarterly, communicating the views of its Core/Value and Quantitative Investing Teams on various market issues.
Written by security analysts David Brenia, Sam Chang, and Gordon Cromwell, the commentary, entitled How to look at beauty as in the eye of the acquirer, notes that acquirers typically look at three criteria in sizing up a potential purchase: strong free cash flow, a reasonably healthy balance sheet, and a position in lucrative niche markets.
The analysts consider free cash flow to be “the best standard by which to measure a company’s profitability,” noting that companies with strong free cash flow have the flexibility to pay down debt, increase dividends, and take other actions that enhance shareholder value. They contend that a clean balance sheet (defined by high cash levels and low long-term debt) helps a company to “weather tough markets and remain more competitive” than competitors that are highly leveraged. And finally, the authors assert that companies serving niche markets are attractive to acquirers because they “open the door to new customers and new sources of revenue and profits.”
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