Here at The Motley Fool UK, we don’t just consider buying shares in companies because we think they will be snapped up in a takeover deal. We strive to identify high-quality businesses that are leaders in their sector, with shareholder-focused management.
But it is a reality that, from time to time, other firms’ leadership teams also see value in great companies and launch acquisition bids, resulting in a spike in the targeted firm’s share price.
With that in mind, here are a handful that could be considered as ripe for the picking!
Dr Martens
What it does: Dr. Martens designs and sells iconic footwear around the globe.
By Ben McPoland. After losing around 82% of its value since going public in 2021, Dr Martens (LSE: DOCS) looks like a prime takeover target to me.
Its market cap is now just £755m, as I write. That seems low considering that the FTSE 250 bootmaker was valued at £3.7bn just three years ago.
The CEO is stepping down after sales have slowed and the firm issued its fifth profit warning in three years. Worryingly, there is ongoing weakness in its key North America market, where management says “it will take longer to see an improvement in USA results than initially anticipated.”
Some are now pushing for a strategic review. According to Reuters, one large shareholder recently wrote to the board to say: “Maintaining Dr Martens as an independent publicly traded company is likely no longer in the best interests of shareholders.“
Despite the slump in sales, the company is still profitable and the brand remains strong in most global regions. So I reckon it’s just a matter of time before at least one bidder emerges.
Ben McPoland does not own shares in Dr Martens.
ITV
What it does: ITV is the UK’s largest commercial broadcaster and operates a vast global production division.
By Royston Wild. ITV’s (LSE:ITV) share price has been under sustained pressure as weak advertising revenues have smacked profits. The former FTSE 100 broadcaster is down 7% over the past year, meaning over the last five years it has lost a whopping 45% of its value.
As a result, the company now trades on a rock-bottom forward price-to-earnings (P/E) ratio of 8.5 times. This is bound to attract the attention of a number of suitors.
The jewel in ITV’s crown is its sprawling production arm. ITV Studios — which is home to global hits like Love Island and The Voice — now accounts for 51% of group revenues.
And sales here are growing ahead of the market, up 4% to record levels in 2023. In an age when streaming companies are crying out for new content, ITV’s production prowess could make it a hot takeover target. Might the likes of Netflix or Amazon soon come calling?
Royston Wild does not own shares in any of the shares mentioned.
McBride
What it does: McBride makes own-label cleaning products. It also has a portfolio of brands including Surcare and Oven Pride.
By Stephen Wright. A good acquisition target needs three things. It needs an asset someone else wants to buy, it needs to be small enough to acquire, and it needs to be cheap enough to look like a bargain.
Cleaning products company McBride (LSE:MCB) has all three. The company’s valuable asset is its portfolio of brands, which includes Surcare and Oven Pride.
With a market cap of £187m, it’s small enough to be an easy acquisition target for the likes of Unilever. Moreover, it could be a good addition to the FTSE 100 company’s existing product line.
The issue with price is a bit more complicated. At a price-to-earnings (P/E) ratio of 10, the stock looks like good value but not amazing value.
Growth over the last decade has been pretty anaemic, which is why I wouldn’t buy the stock. But if a bigger company could energise sales and cut costs, it could be an interesting acquisition target.
Stephen Wright owns shares in Unilever
Smith & Nephew
What it does: Smith & Nephew is a healthcare company that specialises in joint replacement technology and advanced wound management.
By Edward Sheldon, CFA. There are a lot of UK companies that I consider to be takeover targets right now. But one I want to highlight is medical technology business Smith & Nephew (LSE: SN.).
There are several reasons I view this healthcare company as a potential takeover target. One is that it has a lot of long-term growth potential due to the world’s ageing population. So, established players in the medical device industry (like Johnson & Johnson or Stryker) might see an acquisition as a way to grow their revenues.
Another is that it’s currently trading well below its highs at a very low valuation. At present, the price-to-earnings (P/E) ratio using the 2025 earnings forecast is just 11. That’s a low multiple for a high-quality healthcare business.
Now, of course, we may not see any takeover action here in the years ahead. At the moment, the company is still recovering from Covid setbacks.
However, it’s worth noting that in 2022, analysts at RBC named the company as one of their top UK takeover targets. So, I’m not the only one who sees the potential for an acquisition here.
Edward Sheldon owns shares in Smith & Nephew.
