Merger Mania: 3 Potential Takeover Targets to Watch for Lucrative Buyouts
Reduced interest rates make it easier for firms to buy other companies. That’s because acquiring firms can borrow the money needed to finance mergers and acquisitions (M&A) deals much more cheaply when rates are low. With the Federal Reserve indicating earlier this year that it’s poised to cut its benchmark interest rate three times in 2024, rates are likely headed lower. As a result, the pace of M&A activity is likely to rise in the second half of 2024. Indeed, already in the fourth quarter, after the central bank strongly indicated that it was done raising rates, the value of M&A deals jumped 19% versus the same period a year earlier. Also importantly, lower interest rates tend to increase the value of firms that are in acquisition. For investors who want to try to benefit from the coming surge of merger activity and merger valuations, here are three potential takeover targets to consider.
Potential Takeover Targets: Quanta Services (PWR)
Quanta Services (NYSE:PWR) is a huge beneficiary of both the surge of renewable energy projects in America and the upcoming large increases in the demand for electric power.
That’s because PWR builds “wind, solar, and hydropower generation facilities, as well as battery storage facilities,” while also creating “electric power transmission and distribution infrastructure and substation facilities.”
In December and January alone, the U.S. added a huge combined total of about 7.5 gigawatts of solar capacity, according to the U.S./Federal Energy Regulatory Commission (FERC). And “Between February 2024 and January 2027, FERC expects 85 gigawatts and 24 gigawatts of wind will be added.”
Meanwhile, fueled by the proliferation of chip plants, electric vehicles (EVs), and data centers, the deman for electricity will jump in many parts of the country. For example, Virginia power provider Dominion (NYSE:D) expects the demand for its electricity to jump “by 85% over the next 15 years,”. Georgia Power reported that it will require the amount of power generated by “four new nuclear” plants by 2030.
Quanta will surely benefit from the strong growth of renewable energy and electricity demand. What’s more, its market capitalization, at nearly $38 billion, is low enough for large companies to buy it. Some include Exxon Mobil (NYSE:XOM), Shell (NYSE:SHEL), Caterpillar (NYSE:CAT) or Honeywell (NYSE:HON) to buy it.
Dutch Bros (BROS)
Dutch Bros (NYSE:BROS) is growing rapidly. Its revenue climbed 26% last quarter versus the same period a year earlier. The sales of its “system same shop(s)” rose 5% year-over-year. Moreover, the brand is extremely popular with Generation Z. 62.7% of whom which gave it “a top score” in a recent poll.
What’s more, the market capitalization of BROS stock is just $6 billion. This makes it an easy target for large companies. A few include Starbucks (NASDAQ:SBUX), Dunkin’ Donuts, McDonald’s (NYSE:MCD) or Restaurant Brands International (NYSE:QSR).
Starbucks or Dunkin could make the acquisition in order to eliminate a key rising competitor. Any of the four companies could use their considerable cash to take Dutch Bros overseas. This is likely to unlock huge amounts of profits in the process.
As a result, BROS is one of the best potential takeover targets to buy at this point.
Viking Therapeutics (VKTX)
Viking (NASDAQ:VKTX) has developed an injectable weight-loss drug that appears to be very potent. A “midstage trial” of its offering indicated that it generated more weight reduction than Eli Lilly’s (NYSE:LLY) Zepbound. It is projected to become one of the most lucrative treatments for any condition ever.
And Viking is not too large, as it was changing hands at a market capitalization of $8.8 billion as of the end of last quarter. Consequently, a large drug maker could acquire it fairly easily.
As a result, there has been some speculation that the firm could be bought. Indeed, I think one of many large drug companies that don’t have their own late-stage weight-loss treatment, such as Pfizer (NYSE:PFE) or Bristol-Myers Squibb (NYSE:BMY), could buy VKTX.
After all, according to one source, the weight-loss drug market is expected to surge from $1.9 billion in 2022 to $82.8 billion “by 2032.” That would represent a gigantic compound annual growth rate of 45.7%.
On the date of publication, Larry Ramer held a long position in VKTX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
