5 Potential Buyout Targets In 2012

by: ValueMax

Continuing throughout February, we're looking at stocks that could be targeted for takeovers. Here's today's list:

Some cloud cover with expansion expected later

Even though the financial sector has generally had difficult times over the last five years, Ebix, Inc. (NASDAQ:EBIX), an international provider of software and e-commerce solutions for the insurance industry, has a five year sales growth of 41.22% and five year earnings per share growth of 52.44%. The company has robust revenues TTM of 160.02 million, and its margins are more than healthy.

The suitor

Having grown its market share in the business intelligence software market to 30% with a number of acquisitions since 2007, SAP AG [ADR] (NYSE:SAP) might be looking to improve on the 34% market share that's predicted in the coming years. SAP continues to state that it wants to acquire. Though not a big player, Ebix fills a niche market and will contribute to SAP's bottom line.

Ebix trades around $26 for a $938.56 million market capitalization, and its enterprise value is slightly above that. We could see an offer around the $30 mark, since it would take a premium to motivate shareholders to part with their stock.

Focusing on specialization

It is rare indeed for a small cap biopharmaceutical company to have a portfolio of working drugs, and even rarer still for it to be making money off them. But that's exactly what Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) is doing.

Its product line has two FDA approved oncology drugs and several other candidates in different stages of development. Most of its drugs in clinical development are to be used in oncology, with a minority focusing on urology and other fields. The company recently received good news: one of its FDA approved drugs no longer requires a pre-treatment scan before the drug can be administered. This should see it being more readily prescribed by physicians.

The suitor

Pfizer, Inc. (NYSE:PFE) currently holds less than 5% market share of the oncology drug market, but it is predicted to double by 2018. With an aggressive play like that, it could only benefit the company to extend its portfolio, but without the heavy burden of trials and the guesswork that accompanies the process.

Spectrum currently trades around $14, with its market capitalization at $744.27 million. Its excellent margins and revenues should see a premium being paid. We could see an offer around $20 per share.

Targeted growth

It has taken much of the risk out of the pharmaceutical industry that is associated with the development of new drugs. Instead PDL BioPharma, Inc. (NASDAQ:PDLI) focuses on the production, patenting and licensing of antibody production. It has licensing agreements with four pharmaceutical companies that use the antibody treatment as an advanced alternative to other cancer drugs. Antibodies target cancer cells directly without damaging other normal cells like cancer drugs do.

The suitor

It has a couple of superstars in its stable, bu ta lot depends on new research and development done by Biogen Idec, Inc. (NASDAQ:BIIB), as well as the success of its new multiple sclerosis drug, Tysabri. Focused on oncology and immunomodulatory drugs, it would do well to involve an adjuvant, like that offered by PDL.

PDL's market capitalization is $905.84 million and its shares currently trade around $6, up more than 31% over the last year. Its patents are currently producing strong revenues, but these are set to expire in 2014. An offer would need to factor this in, as well as any research and development set to take place until then. Taking this into consideration, we could see an offer around $10 per share.

Waiting for the lights to come on

Its stock has more than halved in value since May last year, as green technology became the latest casualty of decreased government spending worldwide. Veeco Instruments, Inc. (NASDAQ:VECO) does have the majority of its customers in Asia, though, where the downturn has had less of an impact, but it does seem that the market expects less from the stock in the coming year.

The suitor

It occupies a similar market as Veeco, but Cree, Inc. (NASDAQ:CREE) is nearly three times the size of its smaller competitor. Cree is a multinational manufacturer of semiconductor materials and devices, and is noted for its improvements in LED technologies. Like Veeco, it is waiting for the death knell of old lighting technology and the arrival of a prosperous future.

Veeco's lower share price is the ideal opportunity for Cree to pounce. Its market capitalization is currently $1.13 billion with a share price of around $27. A takeover bid could be as high as $35 per share.

Number 2 in a dirty business

Republic Services, Inc. (NYSE:RSG) provides non-hazardous waste management in 40 states and Puerto Rico, through 348 collection companies. The company serves commercial, industrial, municipal and residential customers - it has millions of residential clients under contract in more than 2,800 municipalities. In the waste management sector, Republic Services, is only eclipsed in size by Waste Management, Inc. (NYSE:WM). Coincidentally, interests in both of these are held by the Bill and Melinda Gates Foundation.

The suitor

Republic Services pays out quite a handy dividend, with a 3.1% dividend yield that has grown 16.55% over the last five years. The cash the company creates could catch the eye of private equity investors looking for strong returns in an industry that, for all intents and purposes, does constitute an essential service.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.