According to Wall Street Journal, the total value of mergers and acquisitions (M&A) in 2021 was $5.7 trillion, 64% higher than the year prior. As we consider the year ahead, I thought it would be fun to speculate about some of the biggest M&A deals of 2022.
According to WSJ, 59,748 deals closed in 2021 through Dec. 21, 22% higher than a year earlier, with an average value of $95.4 million per deal.
Experts suggest that the deals won’t stop happening in 2022.
“We look at the big trends that have continued over the years and say, ‘Are they more likely to continue or not?’ And our conclusion is that, generally speaking, they are likely to continue going into next year.” said David Harding, advisory partner at professional services firm Bain & Co.
With trillions of dollars in cash on their balance sheets, S&P 500 constituents are itching to put their money to work. Here are 10 possible takeover targets for 2022:
- Scotts Miracle-Gro (NYSE:SMG)
- Axalta Coating Systems (NYSE:AXTA)
- Pinterest (NYSE:PINS)
- Peloton Interactive (NASDAQ:PTON)
- Monster Beverage (NASDAQ:MNST)
- The Boston Beer Company (NYSE:SAM)
- Celsius Holdings (NASDAQ:CELH)
- Freshpet (NASDAQ:FRPT)
- Builders FirstSource (NYSE:BLDR)
- eXP World Holdings (NASDAQ:EXPI)
These companies could see big changes in the coming months, and investors could see similarly big rewards as a result.
10 Biggest M&A Deals of 2022: Scotts Miracle-Gro (SMG)
This lawn seed and lawncare provider had a wild ride in 2021. In April, SMG stock hit an all-time high of $254.34. By early December, it had lost nearly half that value. Scotts Miracle-Gro now enters 2022 with a share price that hasn’t been this low since July 2020.
What’s gone wrong at the Ohio company?
The company’s hydroponics business went through a slump in 2021 as U.S. West Coast cannabis producers worked through an oversupply of product. If you’ve got too much pot, the last thing you need is to buy more equipment to grow the stuff.
Wells Fargo analyst Chris Carey sees a buying opportunity at the moment:
“Strong operators can take advantage of market dislocations, and we think SMG can re-run its FY18 playbook to consolidate more share (key driver of hydroponics growth),” Carey wrote in an early December note to clients.
I have no proof there are interested buyers at the current $8.9 billion market cap. However, compared to April, it would be a heck of a lot cheaper to buy SMG at this point.
Long-term, it would make an excellent investment for patient capital.
Axalta Coating Systems (AXTA)
This company’s primary business is supplying customers with automotive paint for new and used vehicles. Its paint is used to coat more than 30 million vehicles annually.
In 2021, its estimated sales are expected to be $4.4 billion. Of that, 40% is from autobody shops, another 23% for makers of new vehicles, 30% for industrial uses and 7% for commercial vehicles.
DuPont (NYSE:DD) sold Axalta to Carlyle Group (NASDAQ:CG) in February 2013 for $4.9 billion. Carlyle took AXTA public 22 months later, selling 50 million shares at $19.50. It’s gained 67% from its IPO price, but the broader index is up 136% over the same period.
In its seven years as a public company, Axalta has been the subject of plenty of takeover interest.
In November 2017, it called off merger talks with Akzo Nobel (OTCMKTS:AKZOY). Had the merger closed, the combined entity would have been valued at $30 billion.
In March 2020, the company called off its search for a potential buyer. The company communicated with more than 50 possible suitors including PPG Industries (NYSE:PPG), but ultimately ended its strategic review due to the novel coronavirus’s effect on markets.
Since calling off its search for a buyer, AXTA stock is up 71%. In 2022, a third time could be the charm.
Pinterest (PINS)
An February 2021 article on cnet.com discussed Microsoft’s (NASDAQ:MSFT) interest in acquiring this social media platform. According to reporting from the Financial Times, actual conversations took place between the end of 2020 and early 2021 with executives of the two companies. Ultimately, the talks didn’t go anywhere.
Despite PINS stock losing nearly half its value in 2021, I remain a strong supporter of its business. In my last article in November, I suggested that the dip caused by PayPal’s (NASDAQ:PYPL) complete denial of rumors it was interested in doing a deal created a buying opportunity in the $40’s.
Pinterest has since fallen to the mid-$30s but seems to have stabilized at this level. I remain confident that its core business will continue to grow.
If I’m Microsoft or even PayPal, if there was ever a time to make a move, now is it.
I have no evidence any discussions are happening. I just see too much value in the social media platform for it to be valued at a mere $36.50 a share.
Peloton Interactive (PTON)
I was never a fan of the Peloton story. Having studied Nautilus (NASDAQ:NLS) for years, I knew the fitness equipment industry was a fickle one. In May 2020, I wondered if PTON was the next Nike (NYSE:NKE) or the next Nautilus:
“While Peloton is definitely not the next Nike, I do think it’s got a much better business model than Wayfair (NYSE:W), which may never make money,” I wrote in 2020. “As [NYU finance professor Aswath Damodaran] said, Peloton should make money someday. But I don’t see it becoming the next Tesla (NASDAQ:TSLA). That said, I also don’t see it becoming the next Nautilus.”
Fast forward to the end of 2021. Peloton stock lost 75% of its value this year, forcing it to cut the price of its exercise bike by $400.
The recurring revenue model of its fitness classes and the technology that drives it should be valuable to private equity, strategic buyers and others. The equipment itself is nothing to write home about.
If its share price continues to fall in early 2022, I wouldn’t be surprised if one or more parties entered the fray to take it private.
Monster Beverage (MNST)
The energy drink sector leader hasn’t delivered much for shareholders in recent years. In 2021, it generated a measly 4.5%, about one-sixth the performance of the S&P 500. Over the past five years, it’s had better performance, up 114%, about the same as the index since the beginning of 2017.
In November, rumors surfaced that Constellation Brands (NYSE:STZ) and Monster were in talks to merge. The combined company would have a market capitalization nearing $100 billion.
For any deal to get done, Coca-Cola (NYSE:KO), which owns 19% of Monster and distributes its drinks, would have to sign off on the transaction. In early November, Coke bought full control of Bodyarmor, a fast-growing sports drink company for $5.6 billion, upping its stake from 15% to 100%. The deal was its largest ever for a single brand.
In addition, Robert and Richard Sands and related parties hold 58% of the votes. Any transaction will only happens with their blessing. I think the deal makes sense because it gives Constellation a top name to expand into the CBD drinks market in a big way.
There are a lot of moving parts on this one. I’d put the odds of something being announced in 2022 at no better than 50/50.
The Boston Beer Company (SAM)
If there was a lesson for Boston Beer in 2021, it was you can never take a product or category for granted. The company had the number two hard seltzer brand in the U.S., delivering outsized sales and profits as a result.
And then it all vanished. The consumer’s desire for Truly and its competitors’ brands went away. SAM stock crashed as a result. From its 52-week high of $1,349.98, achieved in April 2021, it is down 63%.
The company seriously miscalculated the demand for hard seltzer in 2021. As a result, it’s been forced to destroy millions of cases of its product to avoid major discounting.
“Our mission is to sell high-quality products and to build high-quality brands. So rather than take a chance of it getting out in the market and going stale and consumers having a bad experience, we decided to make the hard decision and eat a lot of product, just to make sure consumers didn’t get stale product and have a bad Truly,” The Drinks Business reported Boston Beer Chairman Jim Koch saying in October.
While the company remains optimistic about the hard seltzer market, it took an operating loss of $75.8 million in Q3 2021, down from an operating profit of $101. 8 million a year earlier.
Now might be the perfect time for Boston Beer to transition to private ownership.
Celsius Holdings (CELH)
In the last two months of 2021, Celsius, maker of healthy non-alcoholic beverages, has seen its stock become a lot cheaper. In early November, CELH hit an all-time high of $110.22. Since then, it’s lost one-third of its value. As I write this, it’s trading around $73.50.
However, any prospective suitor won’t be able to acquire the fast-growing beverage company on the cheap. Despite the 33% correction, CELH still trades at more than 23x sales. By comparison, you can buy MNST for 9.5x sales.
So any bid for the Florida-based company in 2022 would likely be from a strategic buyer, rather than a private equity firm.
In November 2020, I included Celsius in a group of seven micro-cap stocks to buy and hold for the next 10 years. In the year since, it’s more than doubled. I still believe it can become an immensely profitable business.
I’ve included Celsius in this list because I believe it could be an excellent acquisition for an appropriate buyer. Hong Kong billionaire Li Ka-Shing is a key investor. Maybe one of his businesses will take it private while it’s lost some of its value.
Freshpet (FRPT)
This maker of quality pet food for cats and dogs went public in November 2014 at $15 a share. If you bought shares in the IPO, you’re up 30% on an annualized basis. That’s an excellent return.
However, most people will look at the fact that the company has lost more than 50% of its value since April, when it hit an all-time high of $186.98, and think its business is on the decline. That’s simply not the case.
Sure, it is experiencing supply chain problems like most businesses and that’s going to hurt the company in the near term. But long term, I don’t see it failing to deliver for shareholders.
On Dec. 17, Freshpet announced that a delay of parts for its packaging machine caused a brief shutdown in the manufacturing process, which forced it to reduce full-year 2021 sales to $427.5 million at the midpoint of its revised guidance.
Assuming it hits the guidance above, the company will have grown its sales from $63.2 million in 2013 to $427.5 million in 2021, a compound annual growth rate of 31.4%.
Freshpet remains a favorite Nasdaq stock of mine. Once it’s able to generate consistent profits, I think the sky’s the limit for this company. It might do better out of the bright lights and expectations of Wall Street.
Builders FirstSource (BLDR)
It’s been a big year for BLDR on the acquisition front. Through the end of September, the country’s largest supplier of building products to the professional market has used $898 million in cash for acquisitions, up from $16 million in the first nine months of 2020.
However, it was the company’s all-stock merger with BMC Stock Holdings on Jan. 4 that got the year off to a fast start. The merger brought together two of the country’s largest dealer networks. Together, they generated combined annual sales of $11.7 billion in 2020 while doing business in 40 states.
Builders FirstSource shareholders own 57% of the company while BMC’s shareholders own the rest.
At the end of September, BLDR had nine-month sales of $15.3 billion, up from $9 billion on a pro-forma basis a year earlier. On the bottom line, it had net income of $1.28 billion, good for an 8.4% net margin. That’s up from 3.2% on a pro-forma basis a year earlier.
While I’ve given up on Warren Buffett buying businesses — his last purchase was in May 2020 when Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) purchased Dominion Energy’s (NYSE:D) natural gas transmission and storage business for $10 billion — it would be the perfect acquisition for his holding company.
Profitable, growing and well run. The only problem: they likely aren’t for sale.
eXP World Holdings (EXPI)
As its home page states, this holding company’s aims to transform the world of work using information, technology and innovation to drive growth at its various businesses, which include eXp Realty, Virbela, and Success Enterprises.
The company made my December 2020 article about the 10 best-performing stocks of 2020. Its stock gained nearly 600% in 2020. It’s not surprising thatin 2021 its returns came back to earth, with EXPI up little more than 1% over the past 12 months. However, EXPI’s five-year annualized total return is a robust 77.5%.
In mid-December, the company’s eXp Realty division reported having more than 70,000 real estate agents worldwide. At the end of 2020, I had never heard of it. This year, I’ve seen eXp Realty signs in my Halifax neighborhood.
EXPI is growing like weeds and the revenues bear that out. It had a record third quarter with $1.1 billion in revenue, double the amount in the same period a year earlier. Unfortunately, its top-line growth hasn’t translated into bottom-line profits. Its net income in Q3 2021 was just $23.8 million, or 2.2% of revenue.
Four of its insiders own 56% of the company. I doubt they’re selling at this point but investors could move on if it doesn’t deliver greater profitability in 2022.
This one’s a long shot.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.