Takeover talks are in the air. Our writer considers several potential takeover targets following the Darktrace share price jump.
Image source: Getty Images
The Darktrace share price jumped by 20% at the time of writing after the British cybersecurity firm said it was in early-stage takeover talks.
Darktrace said it was in discussions with technology investment company Thoma Bravo regarding a cash offer. Talks are currently in a preliminary stage and Thoma Bravo has until 12 September to confirm its intention.
Shares of British fashion brand Ted Baker also soared by 17% after a cash offer by Authentic Brands. The Forever 21 owner agreed to buy Ted Baker for 110p per share, in a deal worth around £211m.
With the pound trading near an all-time-low against the dollar, UK shares could look particularly attractive to larger US firms or private equity investors.
That got me thinking. Which British shares could be targeted next?
I’d look for companies that own strong brands that could fit nicely within much larger global competitors. For instance, I reckon Fevertree Drinks (LSE:FEVR) might look attractive to a drinks giant like Coca Cola or Pepsico.
Fevertree is a market leader in the premium tonics category. It operates an asset-light model that allows it to generate a double-digit return on capital employed. That’s a key measure of business quality, in my opinion.
It experienced phenomenal growth since being founded in 2005. It benefited by being a first-mover in this segment and quickly expanding its distribution network across dozens of countries.
That said, it has attracted competition over the years. So it remains to be seen if Fevertree can maintain its high profit margins and market share.
Overall though, it’s a cash-rich business with no debt. Its share price has also tumbled by 54% over the past year. I reckon it would make an attractive bid target. But even if a deal doesn’t happen, I’d still buy these shares for its brand value and quality characteristics.
Next, I reckon furniture and flooring business SCS (LSE:SCS) is ripe for a takeover. With a market capitalisation of just £55m, it’s tiny. But it has a lot going for it, in my opinion.
It’s one of the most cash-rich companies that I’ve come across and has more cash than its market cap. That could be a highly attractive factor for a potential buyer.
Regardless of any possible attractor, I’d buy this share for its 9% dividend yield alone. Its share price has already fallen by 46% over the past year and I reckon it has priced in a significant slowdown in customer activity. It now trades at prices last seen at the height of the pandemic.
Many smaller competitors might struggle to survive in this sector as the rising cost of living impacts spending on big-ticket items like sofas. Bear in mind that in the short term, this could affect SCS too but the strength of its balance sheet suggests that it should survive. Overall, I reckon it would make a solid long-term holding for my Stocks and Shares ISA. But hopefully one day, a potential suitor will come along and SCS will soar like the Darktrace share price.
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Fevertree Drinks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
| Kevin Godbold
Here’s why I’m tempted to look beyond recession fears and buy some Barclays shares now to hold as economies recover…
Read more »
| Andrew Woods
Andrew Woods looks at how he could derive income from two dividend stocks as part of a wider retirement strategy.
Read more »
| Dr. James Fox
UK inflation jumped to 10.1% in July, according to ONS data. This was higher than expected. So what does it…
Read more »
| Andrew Woods
Andrew Woods takes a look at two FTSE 100 stocks flourishing in the current conditions and explains why he’s adding…
Read more »
| Charlie Keough
The Scottish Mortgage share price is down 30% this year. Despite this, here’s why I think the trust would be…
Read more »
| Charlie Keough
NIO stock has fallen since its impressive gains in 2020. Sitting above $20, this Fool explores if he should be…
Read more »
| Andrew Woods
Andrew Woods outlines the reasons for adding more IAG shares to his portfolio amid improving financial results.
Read more »
| Henry Adefope, MCSI
My optimism about this FTSE 100 insurer earlier in the year has been vindicated. But, can the Phoenix Group share…
Read more »
View All
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
To make the world Smarter, Happier, And Richer
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show and premium investing services.
Read more about us >
We have taken reasonable steps to ensure that any information provided by The Motley Fool Ltd, is accurate at the time of publishing. Any opinions expressed are the opinions of the authors only. The content provided has not taken into account the particular circumstances of any specific individual or group of individuals and does not constitute personal advice or a personal recommendation. No content should be relied upon as constituting personal advice or a personal recommendation, when making your decisions. If you require any personal advice or recommendations, please speak to an independent qualified financial adviser. No liability is accepted by the author, The Motley Fool Ltd or Richdale Brokers and Financial Services Ltd for any loss or detriment experienced by any individual from any decision, whether consequent to, or in any way related to the content provided by The Motley Fool Ltd; the provision of which is an unregulated activity.
The value of stocks, shares and any dividend income may fall as well as rise and is not guaranteed, so you may get back less than you invested. You should not invest any money you cannot afford to lose, and you should not rely on any dividend income to meet your living expenses. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, administrative costs, withholding taxes and different accounting and reporting standards. They may have other tax implications, and may not provide the same, or any, regulatory protection. Exchange rate charges may adversely affect the value of shares in sterling terms, and you could lose money in sterling even if the stock price rises in the currency of origin. Any performance statistics that do not adjust for exchange rate changes are likely to result in an inaccurate portrayal of real returns for sterling-based investors.
Fool and The Motley Fool are trading names of The Motley Fool Ltd. The Motley Fool Ltd is an appointed representative of Richdale Brokers & Financial Services Ltd who are authorised and regulated by the Financial Conduct Authority (FRN: 422737). In this capacity we are permitted to act as a credit-broker, not a lender, for consumer credit products. We may also publish information, opinion and commentary about consumer credit products, loans, mortgages, insurance, savings and investment products and services, including those of our affiliate partners. We do not provide personal advice and we will not arrange any products on your behalf. Should you require personal advice, you should speak to an independent, qualified financial adviser.
The Motley Fool Ltd. Registered Office: 5 New Street Square, London EC4A 3TW. | Registered in England & Wales. Company No: 3736872. VAT Number: 188035783.
© 1998 – 2022 The Motley Fool. All rights reserved. The Motley Fool, Fool, and the Fool logo are registered trademarks of The Motley Fool Holdings Inc.
