7 Buyout Targets to Watch for in 2020


buyout targets - 7 Buyout Targets to Watch for in 2020

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[Editor’s note: “7 Buyout Targets to Watch for in 2020” was previously published in January 2020. It has since been updated to include the most relevant information available.]

Corporate mergers & acquisitions (M&A) activity took a backseat in 2019. That is, because corporate leaders across the globe have been unsure as to where the economy is going next, they have not aggressively looked to acquire other companies over the past twelve months.

Although that is unlikely to change much in 2020, the recent sell-off has made former M&A possibilities both more attractive and less expensive.

Fortunately for investors, a buyout is one of the quickest ways to make money in the stock market. That is, if you own the stock of company X, and company X gets bought out by company Y at a 25% premium, then company X stock usually jumps 25% in a single day. For recent examples, see Fitbit (NYSE:FIT) or Care.com (NYSE:CRCM).

With that in mind, I’ve put together a list of seven stocks that look like strong buyout targets after a market rebound. Will all these stocks be taken out at big premiums? No, but a handful of them could, and that alone makes these stocks worth looking at this year.

Shopify (SHOP)

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Potential Suitors: Amazon, Walmart, eBay

eCommerce solutions provider Shopify (NYSE:SHOP) has leveraged direct and decentralized retail tailwinds to go from nascent player in the global retail market a few years back, to the backbone of many company’s e-retail operations today.

In so doing, the company has started to rub elbows with big retail giants like Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), and eBay (NASDAQ:EBAY), all of whom operate marketplace-style eCommerce sites that are losing share to Shopify’s merchant site-centric model. This alonbe makes them one of the more compelling buyout targets

These online retail players can either choose to compete with Shopify, or acquire Shopify. I have a feeling that “acquire” maybe what these big retailers choose, seeing as Shopify still isn’t that big (sub-$50 billion market cap) and has a ton of momentum (50%-plus sales and volume growth rates).

If so, then you could see the likes of Amazon, Walmart, eBay, and others engage in a bidding war over Shopify.

Domino’s Pizza (DPZ)

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Potential Suitors: Restaurant Brands International

One of the most rapidly consolidating sectors in the world is the fast-casual pizza category.

Four of the top 10 pizza chains in America have been acquired over the past eight years, including Papa Murphy’s, California Pizza Kitchen, Round Table Pizza, and Cici’s. Next up, America’s largest pizza chain — Domino’s Pizza (NYSE:DPZ) — could become number five in 2020.

There have been murmurs that Restaurant Brands International (NASDAQ:QSR), the parent company of Burger King and Popeye’s, wants to add another top brand to its restaurant portfolio soon. One brand that Restaurant Brands doesn’t have in its portfolio is a pizza brand. The top pizza brand in America in terms of sales and momentum is Domino’s. Seems like a perfect marriage, no?

As such, I wouldn’t be surprised to see Restaurant Brands make a play for Domino’s.

Target (TGT)

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Potential Suitors: Amazon, Walmart

Calendar 2019 was the year that Walmart and Target caught up to Amazon in the eCommerce game by building out equally large digital businesses with sprawling omnichannel capabilities.

In response, Amazon tried to break into the physical retail world. But such attempts have fallen short, and Amazon’s presence in the physical retail world remains minimal.

That leaves Amazon at a relative disadvantage to Walmart and Target, both of whom have a big online and offline presence. As time goes on, Amazon increasingly needs to establish an offline presence and one of the more attractive buyout targets in that category is TGT.

What better way to do that than by simply acquiring an offline retail giant? And what better offline retail giant to acquire than Target? Target is the hottest name in retail right now, with an underlying demographic that largely matches the Amazon Prime demographic.

Amarin (AMRN)

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Potential Suitors: Pfizer, Amgen, Novartis

In late 2018, bio-pharmaceutical company Amarin (NASDAQ:AMRN) cracked the fish oil code and created a fish oil pill (called Vascepa) that actually reduces the risk of a cardiovascular event (other fish oil pills have tried very hard to do this; none have actually done it).

Over the past twelve months, sales of Vascepa have skyrocketed — and that’s before FDA approval, which was just granted in late 2019. Now, in 2020, Vascepa will be the first and only FDA-approved therapy for treating persistent CV risk beyond statin therapy.

That’s a big deal. Other big drug companies are taking notice. They’ve tried very hard to do what Amarin has accomplished but with little success. As such, given how far ahead Amarin is in the fish oil market and the huge blockbuster hit that its core therapy Vascepa seems positioned to be, it is likely that a big biotech firm makes a play for Amarin to get in early on what will be huge sales and profit growth over the next three to five years.

The potential suitors? Maybe Pfizer (NYSE:PFE), Amgen (NASDAQ:AMGN), or Novartis (NYSE:NVS). In other words, there is no shortage of potential suitors here, and that could ultimately result in Amarin being taken out at a huge premium.

Under Armour (UAA)

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Potential Suitors: Amazon, Nike, Adidas

Athletic apparel maker Under Armour (NYSE:UAA) has been the eyesore of an otherwise red-hot athletic apparel market for the past several years.

Despite the company’s struggles, Under Armour is still one of the top five preferred and most known brands in this market alongside Nike (NYSE:NKE), Adidas (OTCMKTS:ADDYY), Skechers (NYSE:SKX), and Lululemon (NASDAQ:LULU). Also, because of its struggles, UAA stock is the cheapest in the group by a mile.

Naturally, that makes Under Armour an attractive acquisition target for a larger retailer trying to jump into the athletic apparel game.

Who fits that bill? Amazon. They have been trying to create their own athletic apparel brand for several years now, with very little success. Nike also just pulled out of its deal with Amazon, so the company has a big hole in its retail empire when it comes to athletic apparel. One way to fill that hole would be to acquire Under Armour, and turn UAA into the Amazon athletic apparel brand that the company has tried to establish for so long.

Nike could also make a play for Under Armour. As could Adidas. That’s simply a result of consolidation in the athletic apparel market, as the two giants of the industry look for every angle to out-compete one another.

iRobot (IRBT)

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Potential Suitors: Amazon, Facebook, Apple, Alphabet

Alphabet’s (NASDAQ:GOOG) big acquisition of Fitbit earlier this year — along with reports that Facebook (NASDAQ:FB) held similar Fitbit takeover talks — speaks to one of the more important recent trends in big tech: big tech companies are aggressively and rapidly looking to build out their smart product ecosystems, so as to increase the volume of data they have on consumers, which they can turn around and monetize via multiple channels.

Because of this trend, consumer robotics leader iRobot (NASDAQ:IRBT) could fetch a bid from a big tech giant in 2020. iRobot makes unique smart home products, like robotic vacuum cleaners, pool cleaners, and lawnmowers.

Each of those products gathers tremendous data with respect to the layout of a consumer’s home. No big tech company has any exposure into this consumer robotics market, nor do they have insight into the data which iRobot collects.

Consequently, big tech will inevitably want a piece of the consumer robotics pie. iRobot is the best game in town in that space. Putting two and two together, then, iRobot could fetch a sizable bid from a big tech suitor in 2020 like Apple (NASDAQ:AAPL), much like Fitbit did in 2019 from Google.

Rite Aid (RAD)

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Potential Suitors: Amazon, Walgreens, CVS

In an interesting twist in the Rite Aid (NYSE:RAD) narrative, the very companies which drove this specialty retailer to the brink of extinction in the 2010s could save the company in the 2020s.

That is, while the likes of Amazon, Walgreens (NASDAQ:WBA), and CVS (NYSE:CVS) created tremendous competitive pressures that made Rite Aid largely irrelevant last decade, those same companies may actually try to acquire Rite Aid as the specialty retail world consolidates in 2020.

The writing appears to be on the wall here. Amazon wants a physical retail presence. They also want to get into the pharmacy business. Buying Rite Aid allows them to do both of those things at a very cheap price. Sure, they’d have to remodel and re-organize some stores, but that’s a very doable task for a $900 billion company.

As such, it seems like Amazon is positioned to make a bid for Rite Aid soon. They won’t be the only suitor. Both Walgreens and CVS are in direct competition with Amazon, and would do anything to keep Amazon out of the physical pharmacy game. That includes out-bidding Amazon for Rite Aid.

The result? You could get a big bidding war for Rite Aid.

As of this writing, Luke Lango was long WMT, SHOP, NKE, UAA, SKC, LULU, FB, AAPL, and CVS. 

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