Flurry of Merger and Acquisition Activity Sees a Boost in U.S. Takeover Targets

Flurry of Merger and Acquisition Activity Sees a Boost in U.S. Takeover Targets

Last week, the Dow and S&P 500, hit five-year highs on talks of a possible merger between OfficeMax (NYSE: OMX) and Office Depot (NYSE: ODP).  Individual stocks of both companies moved sharply higher (12.4 percent for ODP and 22 percent for OMX) on reports of merger talks between the two competing office supplies retailers.

Although stocks have dropped since then (on fears of Fed monetary tightening) the recent flurry of M&A activity could still see a boost for a number of smaller cap companies that are possible targets for future takeover moves.

Alluding to a report by Morgan Stanley, the flurry of activity on the M&A front could be attributed to the huge cash levels on identified companies’ corporate balance sheets. The report says that there are at least forty companies which are expected to receive offers just this year alone. This is based on a criterion which includes the targeted company’s dividend yield, debt to asset ratio, projected earnings and other factors.

Presently, companies are quick to jump into such deals as the operating environment at the moment is characterized by low interest rates and slow growth. As cycles mature, there is bound to be an increase in M&A volume and transaction sizes. According to BTIG’s global market strategist, Daniel Greenhaus, the peak of M&A activity usually comes at the peak of a particular market cycle. The best way to look at it is whether the M&A market comes with some level of optimism or bullishness.

In actuality, it is the applied valuation that counts and not the size of the deal. What is clear is that the market seems to be responding well to this surge in merger and acquisitions activities and as a result, investors are finding value in stocks that may become future targets.

Affymetrix Inc. (NASDAQ: AFFX)

Many companies will be on the lookout for merger deals which will be in accordance with their own strategies and aspirations. Affymetrix Inc. for example, (market cap $272.87 million), intends to join hands with DNA Link Inc. (127120: KS) in the development of an innovative molecular diagnostic test aimed at personalized healthcare in the field of genomics. Such an agreement would see the two companies combine GeneChip technology owned by Affymetrix, and DNA Link’s cutting edge forensic test, AccuID chip. It’s apparent that the deal is actually in tandem with Affymetrix’s recent strategy of reaching out to more and more customers and expanding to new market territories.

However, it will not all be smooth sailing for the company due to the considerable decrease in Affymetrix’s customer research and development spending as a result of the unfavorable macroeconomic environment. This is in addition to budget cuts by the governments and other stringent actions that could come into play later this year. On a positive note, the deal has come at the right time and if it goes through, the company could be one of the top performers in the Medical-Biomed sector.