Another year, and another certainty that some companies, especially small and mid-cap ones, will be targets for mergers and acquisitions. The reasons are usually the same: The large cap giants are always looking for ways to improve growth and add to the products or capabilities the corporation has. One of the best ways to increase growth is to purchase smaller companies that have solid product lines, make money and offer products or services that can complement current capabilities.
Each year the analysts at RBC release a detailed list of smaller companies they feel are targets for acquisitions. While they shoot for a broad range of companies, they are generally successful in finding targets that are hit. Of the 535 companies they listed as potential targets last year, 29 were eventually acquired, or a 5.4% success rate.
We screened the communication technology companies on the list and found four that look extremely attractive.
This stock has been very up and down in the past year, and it has frequently been the subject of takeover rumors. Ciena Corp. (NASDAQ: CIEN) provides equipment, software and services that support the transport, switching, aggregation, service delivery and management of voice, video and data traffic on communications networks worldwide.
The company’s Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, Optical Transport Network (OTN) switching and packet switching. Its products comprise the 6500 Packet-Optical Platform, 5430 Reconfigurable Switching System, CoreDirector Multiservice Optical Switches and OTN configuration for the 5410 Reconfigurable Switching System.
The Wall Street consensus price target for the stock is $28.39. The shares closed most recently at $25.81.
This company gets a staggering percentage of its total revenue from Apple, which very well could snap it up. Cirrus Logic Inc. (NASDAQ: CRUS) is a fabless semiconductor company that develops analog and mixed-signal integrated circuits for a range of consumer and industrial markets. It offers audio products, including codecs, analog-to-digital converters, digital-to-analog converters, active noise cancelling circuits, amplifiers and micro-electromechanical system microphones, as well as standalone digital signal processors. Those audio products are used in various mobile applications, such as smartphones, tablets, portable media players, wearables and accessories like headsets and headphones.
The company’s products are also used in a range of high-precision industrial and energy-related applications, including digital utility meters, power supplies, energy control, energy measurement and energy exploration applications.
The consensus price target is $65.67, and shares closed most recently at $55.63.
This company also is frequently mentioned as a potential takeover target. Ubiquiti Networks Inc. (NASDAQ: UBNT) provides carrier-grade networking gear for fixed wireless broadband, wireless backhaul, routing, enterprise Wi-Fi, video surveillance and machine-to-machine communication components.
The company brings broadband access to the under-networked and unconnected regions of the world, especially in emerging markets and rural areas. It delivers high network performance at disruptive prices, where traditional high-touch, high-cost solutions are too expensive and not easily scalable.
The consensus price target is set at $50.43, and the shares closed near that level on Wednesday at $49.37.
This company itself has grown through acquisitions, and it may become a target for just that reason. ViaSat Inc. (NASDAQ: VSAT) is a provider of satellite and digital communication products for governments, enterprises and consumers, and it participates in three core businesses: Government Systems, Commercial Networks and Satellite Services.
The company is the second largest holding for hedge fund manager Seth Klarman, and some feel that the company’s revenues for funded research and development from customer contracts, which were approximately 19% and 20% of total revenues in the nine months ended Dec. 31, 2016, and 2015, respectively, are a big reason why. Substantially all the independent spending can be capitalized for valuation purposes.
The consensus price target for the stock is $69.13. The shares closed very close to that level Wednesday at $68.22.
While there is absolutely no guarantee that these companies are acquired, they all are outstanding stocks to own in aggressive growth portfolios on their own. The take-out factor just gives them another reason to be considered.