This article speculates on a number of takeover targets of 2022. Global mergers and acquisitions (M&A) soared to new highs last year. According to Wall Street Journal, the total value of M&A in 2021 was $5.7 trillion, 64% higher than the previous year. Almost 60,000 deals closed in 2021 through Dec. 21, up 22% year-over-year (YOY). The average value per deal was close to $100 million.
Meanwhile, analysts predict another robust year for takeovers and M&A activity in 2022. With billions of dollars in cash on their balance sheets, many companies are on the lookout for takeover targets these days. As a result, savvy investors can generate lucrative returns from investing in shares of publicly-listed companies that look like prime takeover targets.
Market analysts forecast technology-driven deals to dominate the M&A landscape in 2022, primarily fueled by increasing demand for high tech and data-driven assets. The shift to digital and new disruptive business models is also a key factor.
With that said, here are 7 possible takeover targets for 2022:
- Boston Beer (NYSE:SAM)
- Chewy (NYSE:CHWY)
- CRISPR Therapeutics (NASDAQ:CRSP)
- Electronic Arts (NASDAQ:EA)
- Matterport (NASDAQ:MTTR)
- Peloton Interactive (NASDAQ:PTON)
- Scotts Miracle-Gro (NYSE:SMG)
Takeover Targets: Boston Beer Company (SAM)
52-week range: $376.64 – $1,349.98
Boston Beer is a leading producer of high-end malt beverages, including craft beer, hard cider, and hard seltzer. Its brands include Samuel Adams, Angry Orchard, Twisted Tea, and Truly Hard Seltzer.
The group released fourth-quarter 2021 financials on Feb. 16. Revenue decreased 24.5% year-over-year to $348 million. Net loss came in at $51.8 million, or $4.22 per diluted share, compared to a net income of $32.8 million in the prior-year quarter. Cash and equivalents ended the period at $66.3 million.
On these metrics, CEO Dave Burwick remarked, “While the hard seltzer category growth fell well short of our and the industry’s expectations, dampening our overall performance, Truly did generate 57% of all growth in the hard seltzer category…”
The brewer invested in the hard seltzer boom with its Truly brand, but consumer demand for hard seltzer significantly slowed down in 2021. Moreover, Boston Beer has seen costs increasing in all stages of manufacturing due to rising inflation. Put another way, the weakening seltzer market combined with rising costs wiped out all profits in 2021.
Given its cheaper valuation now, analysts indicate that 2022 may be the year Boston Beer transitions to private ownership. SAM stock hovers around $380 territory, down 63% over the past year. Shares trade at 22.17 times forward earnings and 2.17 times current sales. The 12-month median price forecast for Boston Beer is $475.
Chewy (CHWY)
52-week range: $36.70 – $109.78
If you are a pet parent, you’re likely to know of the Dania Beach, Florida-based e-tailer Chewy. It sells pet food, prescriptions, telehealth services, and other supplies for our furry friends. Especially during the pandemic, the e-commerce name put resources into becoming an all-in-one care solution for pets.
Chewy released Q3 2021 results on Dec. 9. Revenue increased 24% YOY to $2.21 billion. Net loss came in at $32.2 million, or 0.08 cents per diluted share, compared to a net loss of $32.8 million in the prior-year quarter. Cash and equivalents ended the quarter at $727 million.
Despite a slowdown from the previous year, Chewy continues to deliver decent growth. Active customers have grown almost 15% YOY to 20.4 million. Its sticky ecosystem has also led to soaring auto-ship subscriber revenue, a business model Wall Street loves.
CHWY stock is priced around $40, down 63% over the past 12 months. Shares are trading at just 2.15 times trailing sales, compared to 6 times a year ago. The 12-month median price forecast for Chewy stock stands at $70.
Chewy’s recurring revenue model, along with the recent pullback in stock price, make this niche e-commerce play a prime target for a potential takeover.
Takeover Targets: CRISPR Therapeutics (CRSP)
52-week range: $53.90 – $169.76
Our next stock comes from the biotechnology space. CRISPR Therapeutics is one of the leading gene-editing companies. It uses its proprietary CRISPR/Cas9 platform to develop gene-based medicines for severe diseases.
The biotech company issued Q4 2021 results on Feb. 15. Revenue stood at $12.9 million. Net loss widened to $141.2 million, or $1.84 loss per diluted share, compared to a net loss of $107 million, or $1.50 earnings per diluted share, in the prior-year quarter. Cash and equivalents ended the quarter at $2.4 billion.
CRISPR receives attention for CTX001, an investigational gene-edited hematopoietic stem cell therapy. It is being evaluated for the treatment of inherited blood disorders like sickle cell disease. The therapy is developed in collaboration with Vertex (NASDAQ:VRTX).
Moreover, the Food and Drug Administration (FDA) recently granted Regenerative Medicine Advanced Therapy (RMAT) designation to CTX110, an allogeneic CAR-T cell therapy. These gene-based treatments make CRISPR an attractive candidate for a potential buyout.
Gene-editing has been high on the list for major biotechs on the lookout for M&A opportunities. A number of analysts suggest that Vertex may be a potential buyer.
CRSP stock is currently priced slightly below $55, down 60% over the past 12 months. Shares are trading at 12.4 times trailing earnings and 5.1 times trailing sales. The 12-month median price forecast for CRISPR stock stands at $145.
Electronic Arts (EA)
52-week range: $120.08 – $148.93
Dividend yield: 0.54%
Gaming heavyweight Electronic Arts boasts dozens of well-known franchises, including FIFA, Battlefield, Need for Speed, The Sims, Apex Legends among others. Its dominant position in sports video games is especially noteworthy. The group has about 540 million active accounts on its EA player network.
EA released Q3 FY22 results on Feb. 1. Revenue went up by 7% YOY to $1.79 billion. Net income declined to $66 million, or 23 cents per diluted share, compared to $211 million, or 72 cents per diluted share, in the previous year. Cash and equivalents ended the quarter at $2.67 billion.
EA increased its Q3 mobile revenue by 68% YOY to $320 million. Analysts expect strong growth to continue as EA is on track to roll out more mobile titles in the coming years. Management expects to generate $1.9 billion in cash flow from operations in its 2022 fiscal year.
EA stock currently sits around $130, down 9% over the past 12 months. Shares are trading at 17.3 times forward earnings and 5.7 times trailing sales. The 12-month median price forecast for Electronic Arts stands at $165.50.
The combination of a declining stock price and solid fundamentals makes EA a potential takeover candidate by big tech, particularly following Microsoft‘s (NASDAQ:MSFT) recent announcement to acquire Activision Blizzard (NASDAQ:ATVI).
Takeover Targets: Matterport (MTTR)
52-week range: $6.06 – $37.60
Sunnyvale, California-based Matterport offers a platform and hardware that create accurate 3D representation of real-life buildings and spaces. The company came into prominence when Mark Zuckerberg announced Facebook would change its name to Meta Platforms (NASDAQ:FB).
At present, the software offered by Matterport is mainly used by realtors to showcase homes and other properties in their portfolios. However, it could also easily enable the creation of digital twins of businesses.
Therefore, Matterport bulls see it especially to the enterprise metaverse. For example, it already collaborates with Meta Platforms to advance Habitat, its artificial intelligence (AI) platform.
Matterport released Q4 2021 results on Feb. 16. Revenue increased 15% YOY to $27 million. Net loss widened to $25 million, or 10 cents loss per diluted share, compared to a net loss of $2.4 million in the prior-year quarter.
On the metrics, CFO JD Fay said, “… we see the supply chain constraints continuing. This impacts product revenue and, to a lesser extent, it flows into our subscription revenue growth. Our guidance contemplates that these imbalances will be with us through the full year of 2022.”
The spatial-data company is currently focused on growing its customer base. Projected subscription revenue of $81 million for 2022 fell below market estimates, suggesting just a 33% YOY increase. Management is predicting 2022 adjusted net loss will widen more than 100% to 50 cents per share.
MTTR stock currently hovers slightly below $7, down 71% over the past year. Shares are trading at 8.06 times current sales. The 12-month median price forecast for Matterport stands at $12.50.
The technology offered by Matterport has the potential to help other companies advance their own metaverse aspirations, which makes MTTR stock a potential takeover target.
Peloton Interactive (PTON)
52-week range: $22.81 – $129.70
One of winners of the stay-at-home days of the pandemic was Peloton Interactive. Its fitness platform and the streaming of instructor-led exercise classes pushed PTON stock to record highs. However, past several months have meant a turbulent period for the company. Now, investors are watching the steps to be taken by Barry McCarthy, the new CEO.
Peloton announced Q2 FY22 results on Feb. 8. Revenue grew just 6% to $1.1 billion. Net loss came in at $439.4 million, or $1.39 loss per diluted share, compared to a net income of $63.6 million, or 18 cents earnings per diluted share, in the prior-year period. Cash and equivalents ended the period at $1.6 billion.
As people have returned to their pre-pandemic fitness habits, the company failed to keep up with its earlier pace of revenue growth. As a result, the overall demand for its upscale equipment declined significantly over the past year. Peloton has had to cut the price of its exercise bike by $400.
The company currently stands as a top-notch takeover target with its cheap valuation. Analysts point out that recurring revenue model could be valuable to private equity or corporate buyers. In fact, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Nike (NYSE:NKE) are likely contenders.
Despite decelerating revenue growth, connected fitness subscriptions soared by 66% YOY Q2. Management is anticipating a 41% YOY increase in connected fitness subscriptions, but a 23% decline in revenue for the third quarter.
PTON stock currently hovers around $30 territory, down almost 77% over the past 12 months. Shares are trading at only 2.17 times trailing sales. The 12-month median price forecast for Peloton stands at $45.
Takeover Targets: Scotts Miracle-Gro (SMG)
52 week range: $129.74 – $254.34
Dividend Yield: 1.92%
Marysville, Ohio-based Scotts Miracle-Gro is the largest manufacturer of gardening and lawn care products in the U.S. In addition, its wholly-owned subsidiary, Hawthorne Gardening Company, is the leading supplier of cannabis-growing equipment in North America. Therefore, developments in the marijuana industry, especially in Canada, affect operations and quarterly metrics.
Scotts released Q1 FY22 results on Feb. 1. Revenue fell 24% YOY to $566 million. The non-GAAP adjusted loss came in at $48.6 million, or 88 cents per share, compared with an adjusted income of $22.2 million, or 39 cents per share, in the previous year.
The oversupply of pot in the cannabis industry led to a significant slump in sales of hydroponic products used in cannabis growing. Hawthorne reported Q1 sales of $190.6 million, down 38% YOY.
CEO Jim Hagedorn has recently indicated that management is considering Hawthorne’s spinoff. “We’ll create the most valuable pure cannabis play in the world,” he cited. As SMG considers this potential move, analysts wonder whether the company could be become a takeover target itself. With a current market-capitalization (cap) of $7.3 billion, a number of names could be interested in the group.
SMG stock hovers around $130 territory, down 40% over the past year. Shares have an attractive valuation at 16.16 times forward earnings and 1.61 times current sales. The 12-month median price forecast for Scotts Miracle-Gro stands at $185.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
