Commentary: Likely candidates are in tech, financials, consumer
By Lance Helfert
SANTA BARBARA, Calif. (MarketWatch) — Economic forces have come into play, making a wave of mergers and acquisitions a very real possibility in the near future.
First, with corporate bond yields near historical lows, companies have the ability to raise cheap debt to help facilitate deals. Second, as reported in a recent Wall Street Journal article, non-financial firms were sitting on $1.93 trillion of cash and other liquid assets as of the end of September. Many large firms have amassed war chests that can be used to supplement organic growth with acquisitions.
Furthermore, many private-equity funds are holding large sums of cash that were raised prior to the Great Recession, and this money is starting to burn a hole in their pockets.
Specifically, Yahoo Search could still be an interesting asset for Microsoft as it tries to compete with Google. Additionally, the company’s large investments in Alibaba of China and Yahoo Japan offer a potential acquirer a way to tap growth of Internet advertising revenues in Asia. These two stakes are carried on the balance sheet at about $3.78 billion, but the market value of the Yahoo Japan investment alone is around $6.6 billion at the current stock price.
Despite these positive factors, Yahoo seems to be trading at a very reasonable valuation. The company has an enterprise value of about $19.4 billion. But if $636 million in long-term marketable securities and a conservative $9 billion estimate for the value of the Asian investments are subtracted out, the enterprise value falls to $9.76 billion. Given that the company has generated about $1.399 billion in EBITDA over the last 12 months, the stock is trading at less than 7 times EBITDA.
Live Nation Entertainment Inc. is the largest entertainment company in the world, connecting millions of fans to thousands of events all over the globe. Early this year, the company merged with Ticketmaster, which is the largest live-event ticketing firm in the world. The combined entity now has a dominant position in the North American concert-ticket market.