NEW YORK (
) -- As the drama over the attempt by
to be taken private by a consortium of investors for $24.4 billion mounts, some analysts are bracing for a new leveraged buyout wave that could see high profile companies like
find their way into private hands.
The last LBO wave crested in 2007 as credit markets began to freeze and overleveraged banks around the world fell into a state of crisis. Bank of America Merrill Lynch analysts now foresee a new wave building as a result of cheap stock valuations, easy money and a revival in some key finance markets.
Such a scenario could put large-cap firms across the retail, technology and industrial space into private hands, as firms such as
look to put billions in investor money to work.
According to a screen by a team of Bank of America Merrill Lynch quantitative analysts, retailers as visible as Gap,
could be attractive take-out candidates, given their relatively high free cash flows and manageable debt positions.
In the industrial space, names like
could be buyout targets, while tech specialists Symantec,
could also be taken private, according to the BAML analysts.
The BAML analysts were surprised that presidential elections in the U.S. and fears such as the so-called 'Fiscal Cliff' and the prospect of a double dip recession cooled M&A activity in Corporate America. Still, some key deal markets showed signs of life last year.
"The one exception was LBO activity, which has continued to be substantial," wrote the analysts in a report on Wednesday, highlighting that 66% of private equity deals in 2012 exceeded $1 billion.
"Driven by interest rates near all-time lows, an equity market that is on a multi-year climb, and a structured finance market that has made a resounding comeback, we believe the environment is ripe for a further acceleration in LBO activity as well as other forms of M&A," the analysts concluded.
The analysts also argued small cap stocks could benefit from a buyout revival, echoing
by Citigroup analysts.
, tech firms
are among companies on BAML's small-cap takeover screen.
Other potential targets include foods players
Tootsie Roll Industries
, as well as gun manufacturers
Smith & Wesson
, according to the analysts.
"Our argument is based on the fact that balance sheets are in solid shape, capital markets are open and companies are able to get financing," the analysts wrote.
To make the screen, a company had to have a standard deviation for its last 20 quarters of free cash flow less than 0.22, with a free cash flow to enterprise value of more than 4.9%. A firm's net debt to EBITDA had to be less than 0.29, the analysts noted.
Earlier in March, Citigroup
, media conglomerate
, payments specialist
Total System Services
, home retailer
American Eagle Outfitters
Packaging Corporation of America
, as possible private equity buyout targets with market caps in excess of $4 billion.
The team of Citigroup analysts also listed underachieving companies such as
Abercrombie & Fitch
, car parts supplier
Allscripts Healthcare Solutions
Fuel Systems Solutions
and gaming software maker
Take-Two Interactive Software
, as notable small and mid-cap deal targets in 2013.
For more on M&A trends, see what
. Also see
Morningstar's top 2013 M&A picks
-- Written by Antoine Gara in New York