Who Wants to Make a Deal?

 | Jun 15, 2012 | 2:30 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

hun

,

cosi

,

rt

Yesterday's report that chemical name Huntsman (HUN) was being shopped around to private equity firms by Bank of America sent its shares up 10%. This is certainly not the first time there has been speculation (post the Hexion merger debacle) that this name, which is cheap (trading at less than 6x 2013 consensus earnings estimates), would be taken out. How ironic would it be if Bain Capital, said to be one of the firms Bank of America contacted, ended up doing a deal? Huntsman was founded by Jon Huntsman, Sr., who is the father of the former Republican candidate and current Huntsman board member John Huntsman, Jr. Bain, of course, is Mitt Romney's former firm.

While it's too early to say that a deal will be done for Huntsman, the current environment appears target rich for mergers and private equity deals. In my view, one of the places to look for potential deals is in smallville: names that are unloved or underfollowed that are not able to prosper own their own, but have assets on the books and would appeal to a bigger fish or private equity.

We've already seen it in the past year with Midas (MDS) and Force Protection (FRPT), two names that I owned. While I made money on each position, I was disappointed with the numbers for both. Midas was real estate rich, but could not seem to put up solid operating numbers, while Force had a great balance sheet, but was simply too small to continue thriving on its own.

While the deal for Pep Boys (PBY), a name I've owned in the past, fell through, this is still the perfect example of a company that should ultimately be taken out. Real estate rich, with questionable operating performance, the shares are now trading 37% below the $15 per share that Gores Group had originally offered. This one is on my watch list, and I'd gladly pick up some shares in the $7 to $8 range, if they get there.

I thought briefly that Cosi (COSI) might be a target for Panera (PNRA), not because of assets (Cosi doesn't really have any, but there are $209 million in net operating losses), but rather because of the locations of Cosi stores, all leased, and Panera's desire to expand. That speculation has been put to bed, at least for now, due to Cosi's recent rights offering.

But there are certainly other small names that could be targets of private equity, or acquisitions. In the restaurant space, Ruby Tuesday (RT) is asset rich, but struggling somewhat operationally. Wendy's (WEN) continues to be a disappointment as a public company, and I wonder if it would be better off in private hands. In technology, names such as Ingram Micro (IM) and Electro Scientific Industries (ESIO) are cash rich, but the stocks have not been performing well. Callaway Golf (ELY) is a solid brand name that continues to struggle, and there has been some recent activity in the industry with TaylorMade taking out Adams Golf (formerly ADGF). I also continue to think that Krispy Kreme (KKD), another solid brand name with assets, and a sub-$400 million enterprise value, could be a nice target for a bigger name looking to build its brand portfolio.

The possibilities are endless.

Columnist Conversations

HP
Multiple downside targets have been met in HP....either trail stops down or book some profits or BOTH. ...
What an ugly short session for oil and energy related stocks. Think we get some sort of bounce on Monday when...
I saw a comment on JC's piece asking about a tariff on crude oil to protect the American industry and a respon...
Lang:
i was double-delighted to see Stephanie Link bullish on LULU but also a recent piece by Ed Ponsi reflecting th...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.