Matt Badiali of Banyan Hill Publishing says that there are entire trading strategies built around mergers and acquisitions. If you own a company’s stock and they are acquired by a bigger firm there can be a huge payday. An example he gives is if you buy shares in a firm that makes smartphone batteries which last a long time. The odds are a big smartphone manufacturer will buy them and at a price much higher than what their stock trades for. These profits get passed along to the company’s shareholders. If this battery manufacturer had been worth $1 billion and it gets acquired for $2 billion that means the shareholders doubled their money.
The types of companies that usually get acquired are small ones who have high profits and a low amount of debt. Matt Badiali says that an example of this type of company is one in the technology industry that came up with something new they could cheaply manufacturer. Since they are the only ones making this technology they can enjoy big price markups and those large profits. If an investor finds the right opportunity for buying a company’s stock in anticipation of it being acquired it can really pay off. In 2017, there were more merger and acquisition transactions than any other year before.
Globally 50,000 companies were either acquired or merged with and the total value of these deals was more than $3.5 trillion. A quarter of these M&A events involved American companies. Matt Badiali says that the oil and gas industry is currently the one experiencing a lot of M&A activity. Matt Badiali is Banyan Hill Publishing’s chief resource investment expert. His educational background includes a master’s degree in earth science. He was in route to earning a Ph.D. in this subject when a friend talked him into joining him at Stansberry Research in July 2005. It was this year that he started writing about investing in natural resources for his readers. He says this industry is usually very cyclical and to invest well in it you need to understand the science of natural resources as well as the markets themselves.