One of the best feelings you can experience as an investor is waking up and reading about the acquisition of one of your stocks. I enjoyed this recently with Met-Pro (MPR), which I held in my Top 20 Model Portfolio and was one of my largest positions in my Conservative Growth/Balanced Model Portfolio at Invest By Model. Unfortunately, this type of windfall hasn't been that frequent of late, at least for me.
While I don't typically make potential acquisition my central thesis, it is a factor that I take into consideration. One part of the market that I think could see some M&A activity is the retailer industry. While retailers don't typically buy other retailers, though there are exceptions, retailers are often acquired by private equity firms. Most recently, True Religion (TRLG) announced that it will be acquired by TowerBrook Capital (5/10 announcement). Earlier this year, Hot Topic (HOTT) announced it would be acquired by Sycamore Partners (3/7 announcement). It wasn't that long ago (2011) when J. Crew Group was acquired by TPG Capital and Leonard Green & Partners.
I find it easy to find retailers trading at below-market multiples despite having fortress balance sheets. With borrowing costs low, private equity appetite increasing and cheap valuations in the retailer universe, I decided to look for some potential LBO candidates. The following table consists of six companies that met my criteria: <6X EV/EBITDA and a market cap of $300mm to $2 billion:
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