Three ways to spot the next private equity bid target

With the most attractive mid-caps already snapped up and the rest driven up to unattractive levels by M&A fever, where will the private equity firms be setting their sights next? We reveal three ways to spot a sitting duck.

So far the main beneficiaries of the private equity boom have been shareholders in mid-cap stocks. But now analysts such as Merrill Lynch and Thomson reckon that "most of the tastiest morsels" have gone from the FTSE 250, with bid fever driving up share prices on any potential candidates to unattractive levels. Large caps, on the other hand, says Merrill Lynch strategist Karen Olney, "are cheaper versus mid-caps than they have been for nearly 20 years" and several FTSE 100 firms are "hiding their true value". These firms, she says, will have to break up to achieve higher valuations, or a private equity buyer may do it for them. And with the vast sums of money available to private equity, no company is safe. Tom Stevenson in The Daily Telegraph says that £1,100bn is waiting to be spent "in the world's biggest takeover spree". But how do you spot a target?

Private equity targets #1: Low debt

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.