We all know M&A is back (or is supposed to be), and with the revival, various lists of possible takeover targets.
And here is another from Citigroup – but with a twist. The targets have been generated by a logit regression model with inputs from 1,000 deals stretching all the way back to 1994.
So, without further ado, here are the machine generated bid candidates. (Click to enlarge).
Now, you might think it insane to buy either Yell or Punch Taverns in the expectations of a bid, but a portfolio based on the results churned out by the logit regression model has delivered (although only in hindsight).
Albeit with some volatility.
From its data crunching, Citi has also come with up list of common characteristics in the companies which receieve bids:
- They are smaller in size;
- They trade at low valuation multiples;
- They seem inefficiently managed with declining sales growth rates;
- They are less liquid with low cash in their balance sheet;
And last but not least:
- They have strong price momentum and their shares have been trading actively prior to the announcement of the deal.
Well, well. Who would have thought it.
Related links:
Today I shall short Adecco, Danone, Deutsche Telekom, Diageo… – FT Alphaville
An M&A cheat sheet – FT Alphaville