Alexander Roepers: Some Buyout Targets
Alexander Roepers, of Atlantic Investment Management, is speaking at the Value Investing Congress he says that there is a lot potential for takeovers and activism, as valuations have become very depressed. Balance sheets are very strong caused by the stress of 2008. There are huge pools of capital looking to go to work, and with low interest rates and low economic growth, this puts pressure on mergers and acquisitions. We have also seen an increase in recent years of cross border M&A.
Roepers believes we will see an increase in M&A once the fear period subsides.
The S&P equity risk premium is at 8, and Roepers believes this sets a good platform for stocks, and mergers as well.
If the fear index, or volatility index (VIX) gets below 25, we could see an increase in M&A. He believes that plenty of managers at corporations want to do deals now, but they will wait until fear subsides a little bit.
Roepers mentioned Bucyrus, which was bought by Caterpillar (NYSE: CAT) as one of his ideas that got taken over. He is an investor in Joy Global (NASDAQ: JOYG), which he believes could get taken over. Del Monte Foods was taken over by KKR (NYSE: KFN), and was the largest private equity deal post the 2008 financial crisis. ITT (NYSE: ITT) is another company that Roepers went activist on. He got in at $45, and the company is doing a split of its businesses now. It is worth around $64 on a sum of the parts basis. He was also in Lubrizol before Warren Buffet and Berkshire Hathaway (NYSE: BRKA) purchased it. He mentioned packaging, specialty chemicals, and defense sectors as potential for M&A deals. He cited Goodrich (NYSE: GR) in the defense sector.
He talked about valuations, with the strong range being between $1-$10 billion in market capitalization, with $15 billion being at the high end.
Roepers said to look for industry consolidation, as they come in bunches, and have attractive valuations (less than 8 times EBIT).
Roepers mentioned Energizer Holdings (NYSE: ENR) as a potential takeover. The company is the leader or in second position in a lot of markets, and is taking share away from Procter & Gamble (NYSE: PG). It has become very shareholder friendly, it has an attractive valuation, and it has a predictable cash flow. He thinks at a takeover value, it is worth $102 per share.
Ashland (NYSE: ASH) is another company Roepers mentioned as a potential takeover. It is a specialty chemical company, which trades at 5 times EBITDA. It trades around eight times earnings, and cash earnings per share is nearly $1 per higher than GAAP earnings. It has predictable cash flows, and very smart corporate development.
It could spin off the Valvoline business, sell its adhesive business or the water business. Roepers target price is $105 per share.
Another idea as a potential takeover is Flowserve (NYSE: FLS). It trades at 5.7 times EBIT, and 8.6 times 2012 expected earnings. He believes Flowserve is worth $135 per share over the next twelve to eighteen months.
MTU Aero Engines is another company that Roepers believes could be taken over. It could be worth 70 Euros a share in a takeover. It trades in Europe.
Atos is a competitor to IBM (NYSE: IBM) and Accenture (NYSE: ACN), a French IT services company. He also believes Atos could be a take over candidate. He thinks Atos could fetch 50 Euros in twelve-eighteen months.
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