Coach, Gap, Sturm Ruger Among Merrill Lynch Takeover Candidates
NEW YORK (TheStreet) -- As the drama over the attempt by Dell
The last LBO wave crested in 2007 as credit markets began to freeze and overleveraged banks around the world fell into a state of crisis. Bank of America Merrill Lynch analysts now foresee a new wave building as a result of cheap stock valuations, easy money and a revival in some key finance markets.
Such a scenario could put large-cap firms across the retail, technology and industrial space into private hands, as firms such as Blackstone
According to a screen by a team of Bank of America Merrill Lynch quantitative analysts, retailers as visible as Gap, Coach
In the industrial space, names like C.R. Robinson
The BAML analysts were surprised that presidential elections in the U.S. and fears such as the so-called 'Fiscal Cliff' and the prospect of a double dip recession cooled M&A activity in Corporate America. Still, some key deal markets showed signs of life last year.
"The one exception was LBO activity, which has continued to be substantial," wrote the analysts in a report on Wednesday, highlighting that 66% of private equity deals in 2012 exceeded $1 billion.
"Driven by interest rates near all-time lows, an equity market that is on a multi-year climb, and a structured finance market that has made a resounding comeback, we believe the environment is ripe for a further acceleration in LBO activity as well as other forms of M&A," the analysts concluded.
The analysts also argued small cap stocks could benefit from a buyout revival, echoing similar analysis by Citigroup analysts.
Clothes retailer Express
Other potential targets include foods players Krispy Kreme
"Our argument is based on the fact that balance sheets are in solid shape, capital markets are open and companies are able to get financing," the analysts wrote.
To make the screen, a company had to have a standard deviation for its last 20 quarters of free cash flow less than 0.22, with a free cash flow to enterprise value of more than 4.9%. A firm's net debt to EBITDA had to be less than 0.29, the analysts noted.