Underperforming public companies have become increasingly attractive acquisition targets in recent years, according to research out today.
Intralinks and the Cass Business School have published a study, based on data spanning 23 years and 34,000 firms worth at least $50m (£38m), seeking to determine what features make a company an attractive target.
The researchers examined six areas: growth, profitability, leverage, size, liquidity and valuation.
Difference in attractiveness between public and private companies
They found that high leverage and large size are the two most statistically significant predictors of a private company becoming an acquisition target.
However, among public companies, the best predictors were small size and low profitability, the research found.
Philip Whitchelo, vice president of strategy and product marketing at Intralinks, said:
Since 2008, acquirers have been particularly targeting underperforming public firms, because underperforming public companies are more likely candidates for operational improvements and cost savings through merger synergies.
Buyers also take advantage of public companies whose valuations have fallen the most during market downturns.
The study also found that companies in the energy sector were the most likely to be acquired.
Professor Scott Moeller, director of the M&A research centre at Cass Business School in London, said:
There have been many historic deals which reflect our results.
Take the acquisition of Panasonic Healthcare by KKR in 2013, or the acquisition of Whyte & Mackay by Emperador in 2014 – these targets had high probabilities of being acquisition targets based on their leverage and size – and this eventually became a reality.