As ARM Holdings plc flies on takeover bid, who could be next?

Roland Head looks at the bid for ARM Holdings plc (LON:ARM) and asks whether Imagination Technologies Group plc (LON:IMG), TalkTalk Telecom Group plc (LON:TALK) or The Sage Group plc (LON:SGE) could be next.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The sale of ARM Holdings (LSE: ARM) to Japanese telecoms group Softbank for £24.3bn means that shareholders in the UK tech success story will walk away with £17 per share.

The deal represents a 201% return on ARM shares over the last five years, without factoring-in dividends. For shareholders who’ve held the stock for 10 years, the gain is a whopping 1,569%!

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Investing in successful stocks that become bid targets can be very rewarding. While I wouldn’t suggest buying a stock simply because it might get taken over, I do think it’s worth looking for companies with the characteristics potential buyers look for.

UK #2 in chip design?

Softbank believes ARM could be a big player in the Internet of Things. Its chip designs could potentially feature in millions of newly-connected everyday devices. News of the ARM offer sent shares in Imagination Technologies Group (LSE: IMG) up by 10% on Monday morning.

The group has a similar business model to that of ARM, designing and licensing chip designs to for use in smartphones and other modern devices. But while ARM’s progress has been smooth and impressive — revenues have doubled since 2011 — Imagination’s hasn’.

Imagination is currently in the middle of a turnaround plan. Analysts are hopeful that profitability will be restored this year, but the shares already trade on 26 times 2017/18 forecast earnings. A potential bidder would have to believe they could transform a company whose profits have fallen continuously since 2012.

A valuable customer base?

TalkTalk Telecom Group (LSE: TALK) has been through the wringer over the last year, thanks to a highly-public cyber security attack.

That turned out to be less serious than expected and doesn’t concern me. I believe a potential buyer would be more interested in TalkTalk’s position as the UK’s leading budget broadband service, and its 3.9m broadband and telephone customers.

For a company such as Vodafone Group, TalkTalk could be a useful and affordable way of expanding market share in fixed-line services. An overseas player wanting to move into the UK might also be interested.

A big buyer would be able to refinance TalkTalk’s net debt of £679m at a lower cost. But if I was a shareholder it would concern me. I’d also be worried about the 6.9% forecast yield. TalkTalk’s dividend hasn’t been covered by earnings for some years, and could still be cut.

Built-in growth

Accounting software firm The Sage Group (LSE: SGE) is a company I wish I’d bought years ago. The group’s systems are integral to many company’s finance processes.

Sage’s dividend has risen by an average of almost 10% per year since 2010. An investor who paid 240p per share six years ago would now be sitting on a 180% capital gain and enjoying a 5.6% dividend yield on cost.

The group’s increasing focus on subscription services rather than packaged software sales should help to guarantee strong recurring revenues for many years to come. Unfortunately a strong share price performance means that Sage now trades on a 2016 forecast P/E of 24 and offers a forecast yield of just 2.2%.

I’m not sure the shares are good value at current levels, but this is certainly a stock I’d be happy to buy on the dips.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Roland Head owns shares of Vodafone Group. The Motley Fool UK owns shares of Imagination Technologies. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Thoughtful anxious asian business woman looking away thinking solving problem
Investing Articles

3 UK shares to buy in a stock market crash

Inflation and rising interest rates have our author on the lookout for a stock market crash. Here’s what he’s looking…

Read more »

Futuristic front of NIO car in Norwegian showroom
Investing Articles

Down over 50%, is NIO stock the best EV pick right now?

NIO stock has dipped over 50% in the past year. Does this create the perfect opportunity to buy or are…

Read more »

Buffett at the BRK AGM
Investing Articles

3 Warren Buffett techniques to build my wealth

Our writer shares a trio of Warren Buffett investing habits he hopes can help him build his own wealth.

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Aviva shares are in demand. Should I buy too?

Hargreaves Lansdown investors were piling into Aviva shares last week. This Fool is asking whether he should join the queue.

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

3 reasons why I think the IAG share price could rally this year

Jon Smith writes about how improving risk sentiment could help the IAG share price this year, but not without risks…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

A passive income stock I’ve bought to supercharge my wealth!

I think this UK dividend stock is one of the best to buy for healthy long-term passive income. Here's why…

Read more »

British Pennies on a Pound Note
Investing Articles

3 hot penny stocks I’m buying in June!

With their exciting growth potential, penny stocks can be great investments. I've found three to buy next month based on…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

2 green dividend shares I’d buy with £500

Jon Smith explains two dividend shares with a focus on renewable energy that have caught his eye at the moment.

Read more »