Investing in companies that may be ripe for ൩takeovers can be a useful strategy for those seeking the potential for big returns. But you have to know what makes a company a takeover target to make such smart investments.

⭕Well-financed suitors look for certain takeover trademarks in their target companies. Once you k💫now what the big company executives train their eyes on, you too may be able to pick some prime candidates for takeovers.

The factors below can enhance your research process and help you to identify characteristics that🌟 may be attractive to potential suitors.

Look for these eleven factors as part of your due diligence resওearch🌱 into potential takeover target companies:

1. A Special Product or Service Niche

A large company often has the luxury of being able to develop an arsenal of varying services and products. But if it can buy 🥂a company at a reasonable price that has a unique niche in a particular industry due to a certain product or service, it will probably do so.

Smart suitors will wait until the smaller 🌳company has done the risky legwork and advertising before buying in. Once a niche 🍰is carved out, the larger firm may come knocking.

In terms of both money and time, it is often cheaper for larger companies to acquire a given product or a service than to build it out from scratch. This allows them to avoid much of the risk associated with a startup procedure.

2. Additional Financing Is Needed

Smaller companies often don't have the ability to market their items nationally, much less internationally.

Larger firms with deep pockets have this ability. So, look for not only a company with a viable 澳洲幸运5官方开奖结果体彩网:product line but one that, with the proper financing, could have the potential for large-sc🅰ale growth.

3. A Clean Capital Structure

Large firms want an acquisition to go forward as expeditiously as possible, but some companies have overhang that dissu🅺ades 🌃potential suitors (greater overhang can mean greater risk).

Be wary of companies with a lot of 澳洲幸运5官方开奖结果体彩网:convertible bonds or varying classes of common or 澳洲幸运5官方开奖结果体彩网:preferred stock, especially those with super voting rights.

The reason that overhang dissuades companies from making an acquisition is that the acquiring firm has to go through a painstaking 澳洲幸运5官方开奖结果体彩网:due diligence process.

Overhang presents the risk ꦬof significant dilution and the possibility that some shareholders with 10-to-1 voting rights might꧅ try to hold up the deal.

If you think that a company may be a prospective takeover target, make sure it has a clean 澳洲幸运5官方开奖结果体彩网:capital structure. In other words, look for companies that have just one class of 澳洲幸运5官方开奖结果体彩网:common stock and a minimal amount of debt 𝓰that can be converted into common shares.

4. Debt Refinancing Is Possible

In the latter half of the 1990s, when interest rates began to decline, a number of casino companies found themselves saddled with high fixed-interest 澳洲幸运5官方开奖结果体彩网:first mortgage notes.

Because many of them were already drowning in debt, the banks weren't keen on refinancing those notes. So, along came larger players in the industry.

These larger players had better 澳洲幸运5官方开奖结果体彩网:credit ratings, deeper pockets, and access to capital. They were able to buy up many of the smaller, struggling casino operators. Naturally, a large amount of 澳洲幸运5官方开奖结果体彩网:consolidation occurred.

After the deals were done, the larger companies refinanced tꦛhese first mortgage notes, which, in many cases, had very high interest rates. The result was millions in cost savings.

Therefore, when considering the possibility of a takeover, look for companies that could be much more profitable if their 澳洲幸运5官方开奖结果体彩网:debt loads were refinanced at a more favorable rate.

5. Geographic Proximity

When one company acquires another, management usually tries to save money by eliminating redundant overhead. In other words, why ꧑maintain two warehouses if one can do the job and is accessible by both the acquiring and target compa♉nies?

So when examining companies as takeover targets, look for potential suitors and targets that are geographically convenient to each other and that, if combined, would present share▨holders with a huge potential for cost savings.

6. A Clean Operating History

Attractive takeover candidates usually have a clean operating history. They have♚ consistent revenue streams and steady businesses.

Suitors and financing companies want a smooth acquisition transition. They will be wary if a company, for instance, has previously filed for 澳洲幸运5官方开奖结果体彩网:bankruptcy, has a history of reporting erratic earnings results,&꧃nbsp;or has recently lost major customers.

7. The Target Enhances Shareholder Value

Has the target company been proactive in telling its story to the investment community? Has it 澳洲幸运5官方开奖结果体彩网:repurchased its shares in the open market?

Suitors want to buy companies that 💧will thrive as part of a larger company, but also those that💧, if needed, could continue to work on their own.

This ability to work as a standalone applies to the 澳洲幸运5官方开奖结果体彩网:investor relations and 澳洲幸运5官方开奖结果体彩网:public relations function. Suitors like companies that are able to enhance sha꧑reholder value.

8. Experienced Management

In some cases, when one company acquires another, the management team at t𒀰he acquired company is sacked. However, in other instances, management is kept on board because they know the company better than anyone else.

Therefore, acquiring companies often look for candidates that have been well run. Remember, good stewardship can imply that the company's facilities probably are in good order and that its customer base is content.

9. Minimal Litigation Threats

Almost every company at some point in time will be engaged in some sort of litigation. However,🌌 companies seeking acquisition candidates will usually steer clear of firms that are saddled with lawsuits. In general, suitors avoid acquiring unknown risks.

10. Expandable Margins

As a company grows its revenue base, it develops 澳洲幸运5官方开奖结果体彩网:economies of scale. In other words, its revenues grow, but the overhead—its rent, interest payments, and maybe even its labor c💃osts—stays the same, or increases at a much lo🍨wer rate than revenue.

澳洲幸运5官方开奖结果体彩网:Acquirers want to buy companies that have the✱ potential to develop these economies of scale and increase profit margins. They also want to buy companies that have their cost structure in line, and viable plans♑ to grow revenue.

11. A Solid Distribution Network

In particular, if a company is a manufacturer, it must have a solid 澳洲幸运5官方开奖结果体彩网:distribution network or the ability to plug into the acquiring company's network if it is going to be a serious takeover target. What good is a product if it can't be brought to ℱmarket?

Make certain that any company you believe could be a potential takeover tarℱget has not only the ability to develop a product but also the ability to deliver it to its customers on a timely basis.

The Bottom Line

With the investment community focused on ever-increasing profitability, large compa🐻nies will alwꦆays be looking for acquisitions that can add to earnings fast.

Therefore, companies that are well run, have excellent products, and the best distribution networks are l🅠ogical targets for a possible takeover.