NEW YORK ( TheStreet) -- With the leveraged buyout market heating up, TheStreet has identified 10 potential targets, all of which are priced cheaply to earnings and to free cash flow.
Immucor's (BLUD) agreement last Tuesday to be acquired by TPG Capital for $27 a share, or $1.973 billion, representing a 30% premium over the previous market close, and Exco Resources (XCO) CEO Douglas Miller's continuing attempt to take his firm private, are examples of a frothy LBO market.
One Wall Street veteran we spoke to said that "the sweet spot right now is for profitable companies, priced cheaply to free cash flow, with market caps of between $1 billion and $10 billion." This source added "credit spreads have dropped tremendously over the past 18 months, making borrowing easy," for companies looking to acquire.
William Simpson, a partner in the corporate practice of Paul Hastings, confirmed that "by historical measures you can get very good leverage and the money is inexpensive."Simpson also told TheStreet that "increased confidence about the stability of earnings" is also driving deals, and that although "there haven't been many megadeals" lately, "people are doing larger deals now." According to Simpson, "the three hottest areas" for LBO deals "have been technology, healthcare and the whole retail restaurant and consumer area" which "part reflects that that area was so dead for a while." In order to come up with a list of attractively-valued profitable companies with the potential to be taken private, we used the FINVIZ.com stock screener select U.S. stocks using these criteria:
- Market Capitalization between $1 billion and $10 billion
- Price/Trailing Earnings ratio below 10
- Price/Forward Earnings ratio below 10
- Price/Cash below 5
- Price/Free Cash flow below 12
- Positive Return on Equity