Mark Hines

Screening for Potential Buyout Targets

I'm with you James, this one shouldn't have passed the debt to equity screen. As an anecdotal story, I used to work for a bank that paid over $100,000 per month for one of the most respected quant models in the industry. After several months, it was discovered that one of the factors in the model (9 month earnings momentum) was completely wrong! That's why I never rely totally on quant models and stocks screens. They're just a starting point, and should be re-tested regularly and followed up with detailed fundamental analysis. Thanks for bringing this to our attention!

Screening for Potential Buyout Targets

Ralph- This is an art more than a science (I build a screen like this every couple months and I use slightly different factors every time). The goal is to figure out which companies will be the next takeover targets before there is actually any public information. If you want concrete numbers, try market capitalization between $500 million and $8 billion (this seems to be the sweet spot for a lot of buyouts), debt to equity less than 0.5 (in reality the lower the better), and positive cash flow consisting mostly of cash flow from operations (again, the more the better). Once you’ve got your list, try to think like a private equity firm. If you wanted to make a ton of money, which firm would you acquire? If you want more concrete numbers, check out CNBC’s 13 factor takeover target profile: (www.portfoliochallenge...).

Mark Hines