The Top 3 Moves to Make in the $811.8 Billion M&A Market

The following share-price jumps underscore just how much money there is to make in the merger and acquisition (M&A) market - if you know how to choose the right buyout targets, that is.

For example, shares of Pace Plc. (OTCMKTS: PCMXF) soared more than 33% on April 24.

The reason: The maker of set-top boxes and broadband networking gear agreed to be acquired by industry leader Arris Group Inc. (Nasdaq: ARRS) in a deal worth $2.1 billion.

M&A marketAnd on March 30, insurer UnitedHealth Group Inc. (NYSE: UNH) said it was buying Catamaran Corp. (Nasdaq: CTRX), sending shares of the Illinois-based pharmaceutical benefits manager up nearly 25% in one day.

I expect to see a lot more M&As through the end of the year. Indeed, a recent report shows that first-quarter global M&A activity reached its highest level since 2007.

With that in mind, today I want to introduce you to three companies that I believe are good Tech Takeover Targets. And I want to show you how to invest in them before they get picked up and their share prices soar.

After all, there's no money in the M&A market if you wait too long to make your move...

Perfecting the M&A Market

When it comes to M&As, 2015 is off to a roaring start. Thomson Reuters recently reported the total value of global M&A hit $811.8 billion.

No, that's not an annual figure - that's just the value of all deals announced in the first three months of this year.

Thomson Reuters says U.S. firms account for the largest share of the global M&A market. All told, American companies announced $399.1 billion in M&As in 2015's first quarter, or 49% of the world's activity.

That's in no small measure because of the health of the tech industry. Overall, tech firms are reporting strong growth in sales, cash flow, and profit margins.

In fact, the strong first quarter follows what the analysts at PwC say was a "banner year" for the U.S. technology M&A market. According to PwC, the volume of U.S. tech deals increased 36%, and the volume of deals jumped 62% - to 235 M&As worth $145.5 billion.

While you can spend hours combing debt-to-equity, liquidity, and market cap numbers, finding good Tech Takeover Targets remains more art than science.

However, as someone who's spent well over 35 years in and around Silicon Valley, I've gotten pretty good at that art. It all comes down to catalysts - acquirers are looking for good fits and solid reasons to act now.

And after running those numbers and then taking a good, hard look beyond them, I think I've identified some pretty good catalysts - and, therefore, some companies that I believe will get bought out within the next year or two.

Let's examine a few of these Tech Takeover Targets - all three are stocks you should take a look at...

Tech Takeover Target No. 1: Express Scripts Holding Co.

The big-cap firm is the nation's leading pharmacy benefit manager (PBM) by volume of prescriptions processed. PBMs, which manage pharmacy benefits and negotiate lower prices with drugstores for health employers and health plans, have become critical as the nation continues to look for ways to cut rising healthcare costs.

The entire healthcare sector is grappling with the impact of the Affordable Care Act (Obamacare) and the mandate to drive down costs across the board. That dynamic is putting pressure on pharmacy firms to lower their overhead, and M&As can bring synergies by removing redundant operations.

As such, Express Scripts (Nasdaq: ESRX) is on my Tech Takeover Target short list for two main reasons.

First, senior execs at drugstore giant Walgreens Boots Alliance Inc. (Nasdaq: WBA) recently said they are looking for more acquisitions that will add growth and lower overhead. That announcement comes after Walgreens last August agreed to pay $15.3 billion for the portion of U.K.-based Alliance Boots GMBH it didn't already own.

Second, the list of PBM targets is getting smaller. Consider that Rite Aid Corp. (NYSE: RAD) is buying EnvisionRx, an Ohio-based PBM. And I already told you about UnitedHealth agreeing to buy Catamaran.

All of which puts Express Scripts front and center. Founded in 1986, the company handles some 1.4 billion prescriptions a year, with 80% of those involving lower-cost generic drugs.

With a $63.01 billion market cap, the stock opened today at $86.95. Profit margins of 6% are a bit thin, but the St. Louis-based company has been growing sales at 28% a year.

Tech Takeover Target No. 2: ON Semiconductor Corp.

ON Semiconductor (Nasdaq: ON), a Phoenix-based small-cap chipmaker, is attractive due to what I've been calling "Xiaomi Fever."

I'm talking about the wild success of Chinese smartphone maker Xiaomi Inc. One of the world's fastest-growing tech firms, Xiaomi owns a 14% share of China's smartphone market.

Not bad for a privately held company that was only founded in 2010.

ON Semi, which was spun off from Motorola Solutions Inc. (NYSE: MSI) in 1999, supplies Xiaomi with more than 45 tech components. And earlier this month, the Chinese tech firm awarded ON with a "Best Technology Award."

ON, which specializes in chips used for power and signal management, also stands to benefit from the connected car in the United States. ON develops chips for active safety features and in-dash "infotainment systems." The auto industry accounts for 32% of sales and is the firm's single largest market.

By acquiring ON Semi, a buyer would also be taking advantage of ON's own recent merger streak. It's made six acquisitions since 2010, beefing up its presence in sensors, microcontrollers, and power supplies.

The company is priced to sell. With a $5.12 billion market cap, the stock opened today at $11.60. Yes, it has $1.2 billion in debt, but it holds cash on hand equal to half that amount and could pay off the rest from cash flow in two years without the new efficiencies an acquirer would add.

Tech Takeover Target No. 3: Achillion Pharmaceuticals Inc.

Shares of Achillion Pharmaceuticals (Nasdaq: ACHN), a clinical stage biotech firm, have come under pressure lately after the company raised more than $132 million in a secondary offering last February.

The move diluted existing shares and caused the stock to sell off by 37% over the past quarter.

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Sounds bad, but I think the sell-off increases the odds that this small-cap player in infectious diseases will get picked up.

Achillion is looking at a huge market with its focus on hepatitis C, a blood-borne disease that can cause severe liver damage - and that affects 3.2 million people in the United States alone.

The potential here is staggering. Analysts say the market for hepatitis C drugs hit $15 billion last year and could climb nearly 50% to $22 billion by the end of 2017.

Last December, Achillion said its lead product, ACH-3102, combined with Sovaldi from Gilead Sciences Inc. (Nasdaq: GILD), led to a quick cure among a small group of hepatitis C patients. They required only six weeks of treatment.

As such, Achillion says it's one of only three companies that now offer fast results for hepatitis C. The other two are Big Pharma leaders Gilead and Merck & Co. Inc. (NYSE: MRK).

That leaves Achillion as the only easily digestible company left in the huge hepatitis C market. The company, which went public in 2006, has a market cap of $1.11 billion.

The stock was under pressure as part of the biotech sell-off on April 27 and opened today at just $8.86, making it easily affordable for a large drug or biotech buyer.

A "Special" Play

Now then, takeover investing is a "special situation." That means you should only invest a small amount of your investment capital in potential targets.

These are moves only designed for the high-risk portion of your portfolio.

However, while the risks are higher, so are the rewards. After all, choose the right Tech Takeover Target and you can earn a year's worth of returns... in a single day.

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About the Author

Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...

  • He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
  • He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
  • As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.

This all means the entire world is constantly seeking Michael's insight.

In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.

Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.

And even with decades of experience, Michael believes there has never been a moment in time quite like this.

Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.

To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.

His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.

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