Merger mania: 3 under-the-radar takeover targets

These three companies look to be prime takeover candidates.

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Merger mania is sweeping the world. The numbers of deals announced in 2017 has eclipsed the number for the same time last year, and as companies continue to look for new opportunities to improve growth, plenty more deals could be on the cards. 

UK companies are particularly attractive. Thanks to the fall in the value of the pound, UK firms are now cheaper for foreign predators. 

Marketing agency BrainJuicer Group (LSE: BJU) is a great example. Its growth over the past few years has been nothing short of outstanding and the company is now looking to expand around the world after a successful rollout in the US.  To this end, the head of the group’s Americas business, Alex Hunt, has been promoted to lead the market research account management side of the business worldwide.

Group revenue expanded by a quarter last year, or 15% at constant currency and profit before tax rose 38%. Over the past three years, profits have increased more than 300%. 

With a market capitalisation of £100m, BrainJuicer is one of the smaller marketing agencies trading in London. The company’s size makes it the perfect acquisition target for a larger peer that can absorb the business and use existing connections to boost growth. The only problem is the shares look pricey, trading at a forward P/E of 26.3. But for the right buyer, BrainJuicer could be a juicy acquisition. 

Industry consolidation 

IG Group (LSE: IGG) is another firm that could find itself becoming prey to a larger peer. Thanks to regulators’ crackdowns on CFDs and spread betting, there’s a heightened chance of a deal as companies consolidate to lower costs and drive growth. As the UK’s largest CFD provider, IG would have to be acquired by a bigger fish, but there’s no shortage of large banks and asset managers looking to improve revenue while at the same time keep costs down. 

After recent declines, the shares are trading at an attractive forward P/E of 11.3 and support a dividend yield of 6.1%. 

City analysts expect the firm’s earnings to fall next year as the regulatory crackdown comes into force. Earnings per share are slated to fall 11% before rebounding by 6% the year after. 

Retirement sale

Renishaw (LSE: RSW) could be a possible takeover candidate for two reasons. Firstly, the group is one of the UK’s leading engineers and secondly, two of the company’s largest shareholders, chief executive and chairman David McMurtry and deputy chairman David Deer, are aged 76 and 78 respectively. 

Together these managers own around half of the company’s outstanding shares, and they could be contemplating a retirement sale. They’re also more likely to be open to hostile offers for the business with retirement on the horizon. 

That said, the company has a strong working culture, and management has always worked hard to keep jobs rather than cut them during cyclical downturns. So if management is approached, it’s likely they’ll seek to do the best deal for workers. 

Shares in Renishaw currently trade at a forward P/E of 27.9. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Renishaw. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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