The Ideal Backdrop
You're most likely to see M&A activity in industries and sectors where growth has slowed to a crawl. Take the defense sector as an example. Projected budget cuts will make it much harder for the nation's top defense contractors to boost sales and profits. Lockheed Martin (LMT) and Raytheon (RTN) are both expect to post a modest drop in sales in 2012 and again in 2013.
To keep their dance card full, they could look to acquire a company such as Aerovironment (AVAV), which has become a leader in unmanned aerial vehicles (drones) that dot the skies in the Middle East and elsewhere. Or they might look to acquire a company such as iRobot (IRBT), which also has solid government contracts for its products that can be piloted in a remote fashion in hostile environments. Both Aerovironment and iRobot are trading far from their 52-week highs, creating relative bargains for potential acquirers.
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