Who Will Be Next? 3 'Grain of Salt' Acquisition Candidates

 | Jun 23, 2016 | 12:00 PM EDT
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Following up on yesterday's piece on Skullcandy (SKUL) and the recent mini-boom in acquisitions (or potential acquisitions) of deeper-value names, it's only natural to develop a list of companies that might (and I strongly emphasize the word might) also be attractive to an acquirer.

In the past few months, two "double-nets," Ingram Micro (IM) and Rofin-Sinar Technologies (RSTI), have agreed to be acquired, while a third, Skullcandy may be on the verge of being taken private. A fourth name, which is not a "double-net" but one I've somewhat controversially considered a value play over the years, Krispy Kreme Doughnuts (KKD), is also being acquired (and I'm not still not happy about the $21/share takeout price).

The caveat here is that list of names I've come up with must be taken with a grain of salt. Each will exhibit some of the same characteristics as the other "double-nets" mentioned above, but it certainly does not mean that they are in play, or that they ever will be. In some cases, a takeover would be a tall order, for one reason or another that I will mention.

1. AVX Corp. (AVX): The electronic component seller has $1.03 billion, or just over $6 per share in cash, short and long-term investments and no debt. The company also owns 18 manufacturing and warehouse facilities. AVX currently trades at 1.2x tangible book value per share, 18x next year's consensus earnings estimates, 1.62x net current asset value (NCAV) and yields 3%. The company also has fairly solid profit margins (8.5% for latest fiscal year).

However, this otherwise perfect takeover candidate does have one big stumbling block: It is 73% owned by Kyocera (KYO), whose products it distributes. That is a high hurdle, for sure.

2. Benchmark Electronics (BHE): Benchmark is another cash-rich name with $519 million, or $10.53 per share in cash, and $232 million in debt. Currently trading at just 1.07x tangible book value per share, 14x next year's consensus earnings estimates, and 1.31x NCAV, Benchmark is also currently the subject of some activist investor interest. In fact, the activist in question, Engaged Capital, won two seats on Benchmark's board of directors last month.

3. RetailMeNot (SALE): I'm admittedly going out on a limb with this one, a somewhat new addition to the "double-net" population. This digital marketplace company has been creamed since late May 2015, with the shares falling from a high of $21.50 to the mid-$7 range. The company is currently profitable, and trades for about 14x next year's consensus estimates and 1.78x NCAV. RetailMeNot has $257 million, or $5.27 per share in cash and $68.5 million in debt.

I will add to this list in future columns, but, again, I caution RM readers to take this list with a grain of salt.

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