Stock picks, companies ripe for acquisition by private equity: BTIG

  • Private-equity firms are sitting on an estimated $1.5 trillion in cash that can be used to acquire companies. 
  • The coronavirus crisis has cheapened the valuations of many popular companies and made them targets for deals. 
  • BTIG’s Julian Emanuel identified 22 such targets that have been supported by private equity or venture capital in the past.
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Warren Buffett is not the only investor who is hesitating to buy companies in this environment. 

The coronavirus crisis has cast a large shadow of uncertainty on the future of asset prices and, more broadly, how the global economy will function. For this reason, Buffett’s Berkshire Hathaway is sitting on $128 billion in cash and waiting for the right opportunity.

Like Buffett, private-equity firms also have reserves of liquid assets — $1.5 trillion in total, according to BTIG’s estimates. 

“The question of ‘what to buy?’ for PE is more vexing than usual, given the elevated uncertainty,” Julian Emanuel, the chief equity and derivatives strategist at BTIG, said in a recent note. “Yet this uncertainty is what has consistently created opportunity for patient, long-term investors over the last two generations.” 

The one thing all crises have in common is that they end. And to tap into the opportunities that this one presents, private-equity firms can buy up well-known companies whose valuations have recently plunged, Emanuel said.

He screened for companies that were previously backed by private equity or venture capital, went public after the 2008 financial crisis, and now have market caps above $2 billion. Their stock prices are deeply discounted, either trading under the IPO level or more than 50% below all-time highs.

Additionally, these companies are run by the same CEO or founder that took them public, adding to the element of familiarity that could cushion the uncertainty of buying during a crisis. And finally, all the stocks have relatively low leverage, as assessed by net debt-to-equity ratios less than 100%.

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