3 M&A target shares to consider

Merger and acquisition activity has stirred in the financial markets once again. Twitter is being taken private by Elon Musk and even Ted Baker has attracted a series of potential suitors.

Recent research by broker Numis Securities found that 86% of FTSE 250 directors anticipate participating in merger and acquisition activity this year. The survey found that 75% of investors also expect high levels of company takeovers.

“There seems to be an increasing strategic imperative and confidence in the boardrooms of UK plc with respect to pursuing an M&A agenda,” said Stuart Ord, head of M&A at the broker. “Whether that be to take advantage of market strengths or as a defensive necessity to adapt to new realities caused by technology, Brexit and the pandemic.”

With a number of companies trading at historic lows due to the Covid-19 pandemic, the cost of living crisis and the war in the Ukraine, predators could strike. So, which other companies could prove to be attractive acquisition targets?

Could a predator swoop for ASOS?

ASOS was once one of the darlings of the stock market but the shares have fallen 73% in the past year from a high of 5844p to just 1398p. The slump is mostly thanks to the effects of the Covid-19 outbreak and supply chain issues.

The online fashion retailer recently posted a £15.8m loss for the first-half of the year and warned of tougher trading conditions ahead. Rising freight costs are hitting margins and ASOS says it is also uncertain how the cost of living crisis will affect customer spending power.

At these depressed share price levels, it’s possible that a bidder could appear. Anders Holch Povlsen, Danish billionaire owner of ASOS, owns a 27% stake in ASOS and it has previously been suggested that he could combine the business with German online retailer Zalando.

Alternatively, AB Foods’ discount clothing business Primark has no online operation, for example, or a private equity bidder might look to streamline ASOS. With both ASOS and Boohoo.com shares trading a low levels, either could be an interesting option for a predator.

Deliveroo could prove a tasty takeout for the right bidder

Deliveroo shares have more than halved over the past 12 months, falling 57% to 110.85p. What’s more, investors who participated in the IPO are underwater by 72% on the float price of 390p.

Some bankers have called the initial public offering last year the worst in the stock exchange’s recent history, after the shares fell 26% on their first day of trading. Investors took fright at legal action over the employment status of its riders and its years of losses.

Having seen its valuation tumble so far, could the company be an acquisition target? Takeover speculation grew last year after German company Delivery Hero bought a 5.1% stake in Deliveroo.

Amazon also owns a major stake, having injected $575m last year, but its purchase had to be agreed by UK Competition and Markets Authority. It’s unlikely that JustEat or Uber could successfully bid for competition reasons.

It’s possible that US company DoorDash or Dutch investment firm Prosus could take an interest, commentators write. However, as Russ Mould, investment director at AJ Bell, points out, with rampant inflation and growing input costs, it’s clear that the current trading environment for food delivery companies remains tough.

Sainsburys – 'perpetual' takeover target

The food retailer has long been mooted as an acquisition target. The recent flurry of activity in the retail sector, following the purchase of rival Morrison’s has added fuel to the flames.

Last year there were rumours that private equity giant Apollo might swoop for Sainsbury’s but the retailer denied that there was any interest. The investment firm is busy mounting a bid for Boots, currently owned by US firm Walgreens, with Indian billionaire Mukesh Ambani.

However, with Sainsbury’s shares trading near their year lows, it’s possible that a bidder could still emerge.