2 strong takeover targets after £2.1bn WS Atkins plc acquisition
The share price of engineering consultancy WS Atkins (LSE: ATK) has risen by around 5% today after it announced a takeover by SNC-Lavalin. It values the company at £2.1bn, which works out as 2080p per share, to be paid in cash. It represents a 35% premium to the closing price of 1,540p per share, which was last seen on the business day prior to the announcement of a possible offer on 31 March.
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Clearly, the news is likely to be positive for holders of the company's shares. With interest rates still low and valuations also being attractive in certain stocks and sectors, here are two other companies which could be the subject of takeovers over the medium term.
Improving performance
While global engineering company GKN(LSE: GKN) endured a somewhat difficult period in 2015, which saw its profit fall by 4%, the company has since recovered. It posted a rise in earnings of 12% last year as the operating conditions in much of its business continued to show signs of improvement.
More growth could lie ahead for the business. Its current strategy appears to be sound and is forecast to deliver a rise in earnings of 10% this year, followed by further growth of 6% next year. Despite this, it barely trades on a double-digit price-to-earnings (P/E) ratio, with it standing at around 10.3. This indicates that its shares are currently relatively cheap and could therefore be of interest to a potential suitor operating in a similar industry to GKN.
With a fairly sound balance sheet and a diverse spread of operations, the company appears to be well-placed to generate higher earnings growth in the long run. Demand for automotive parts could increase as wealth levels across the emerging world rise, while the aerospace industry may experience improved performance as global economic growth looks set to pick up.
Low valuation
Another potential takeover target is rental equipment specialist VP(LSE: VP). It trades on a relatively low valuation, with its P/E ratio being only 11.2. This compares to an average rating of over 12 during the last five years, which suggests now could be an opportune moment to buy the company.
VP has a solid track record of growth. Its bottom line has risen in each of the last four years, with it averaging growth of over 20% per annum during the period. More growth is forecast over the next two years, with earnings due to rise by around 10% per annum in 2018 and 2019. This puts the company's shares on a price-to-earnings growth (PEG) ratio of 1.1. This indicates that solid, above-average growth is available at a relatively low price.
VP has a diversified business model and operates in the UK and internationally. This could provide it with access to faster-growing markets and to positive currency translation in the long run. Such qualities could make it even more enticing for potential suitors over the medium term.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. 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.
