Intralinks, a leading global provider of Virtual Data Room software and services for managing M&A transactions, has announced the release of “Attractive M&A Targets: Part 1 – what do buyers look for?,” a report based on a new study into what makes a company an attractive acquisition target. Conducted in association with the M&A Research Centre at Cass Business School, City University London, the research examines six key financial measures of almost 34,000 public and private companies, each with annual revenues of at least $50m, over 23 years.
Interestingly, in the Asia Pacific region, the probability of a private company being acquired in any given year is 32.3 per cent, while for public companies, the probability is 3.5 per cent.
The research finds six measures that are statistically significant predictors of a company becoming an acquisition target. It also finds that significant differences in the values of these measures impact the probability of being acquired. The measures are:
- Growth: Target companies have higher growth than non-targets. The study finds that over the 23-year period, 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.
- Profitability: Private target companies are more profitable than private non-targets, whereas public target companies are less profitable than public non-targets. Since 2000, 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.
- 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 per cent less leverage than public non-targets.
- 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 per cent larger than private non-targets. Public targets are 55 per cent smaller than public non-targets.
- Liquidity: Target companies have lower levels of liquidity than non-targets. Companies in the bottom two deciles for liquidity are on average 35 per cent more likely to become acquisition targets in any given year than companies overall.
- 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 per cent more likely to become acquisition targets in any given year than public companies overall.
Download the full report and try the calculator here: