Profit on Mergers and Acquisitions

As the Australian corporate world enters a new mergers and acquisitions cycle, investors and share traders can start looking for opportunities to profit from these corporate actions. Mergers and Acquisitions (M&A) include company takeovers such as Westpac's acquisition of St George and the current bid for AXA.

What characteristics, qualities and variables should you look for in a potential takeover target or a possible acquiring company? There has been a pattern set in the past when a company is approached by an acquirer offers up a bid with a premium on the price sees their share price jump following news or rumours of a mergers and acquisitions deal.

Qualities of a Potential Takeover Target

Here are some ideas on the qualities of a potential takeover target to watch out for – characteristics which make companies a more attractive acquisition target. Typically, aqcuirers with high P/E ratios will look for target companies with low P/E ratios.

• Low Debt
• High Utilisation of Resources
• Excess Liquidity (spare cash)
• Strong cashflow
• Trading activity around takeover announcement (information leaks?)