Ernst & Young has conducted research into the Global M&A activity and its findings are anything but pretty. It predicts that global M&A deals from 2012 will total $2.25 trillion, 47% less than the M&A boom in 2007. It sees additional contraction in 2013 as executives around the world choose to play an extremely conservative hand. Until the economies in both the United States and Europe improve, there's no telling how low the numbers could go. Nonetheless, deals will still get done in 2013; here are my three most likely candidates.

Guide To Oil And Gas Plays: We've got your comprehensive guide to oil and gas shales in North America.

LeapFrog Enterprises (NYSE:LF)
This could be one of the most perplexing stocks anywhere on the planet. It has some of the most popular toys for learning including the LeapPad 2, which has been the market share leader for children's tablets. It has beaten analyst estimates in 10 consecutive quarters; yet its stock price flounders around $8 per share. LeapFrog had a tremendous 2012 and 2013 looks no different. Its earnings per share are expected to grow 20% per annum for the next five years. If it achieves this growth rate, it should deliver $1.87 per share in earnings in fiscal 2017. That's a forward P/E of 4.2, far lower than either Mattel (Nasdaq:MAT) or Hasbro (Nasdaq:HAS), where both companies have an earnings growth rate that is half LeapFrog's.

Mattel's botched purchase of The Learning Company for $3.5 billion in 1999 is considered one of the worst M&A deals in U.S. history. Although this makes the world's largest toy company an unlikely candidate to go after LeapFrog, I have to believe it has a better understanding of what it would be buying a second time around. More than a decade later, educational toys utilizing electronics are hotter than ever. This acquisition is potentially as important as Mattel's purchase of Fisher Price was back in 1993.

SEE: Biggest Merger & Acquisition Disasters

Beam (NYSE:BEAM)
Although Diageo (NYSE:DEO) seemingly has an unlimited bankroll to purchase other liquor companies, it still has to take a pass once in a while. Beam, however, might be too tempting to resist. Britain's Sunday Telegraph reported in December that Diageo was pursuing Beam this past summer in conjunction with Suntory, Japan's spirits and beverage giant. Nothing came of those discussions but where there's smoke, there's fire. On December 11, Diageo called off discussions to purchase an equity stake in Jose Cuervo, the world's best-selling tequila brand. In addition to needing a global tequila brand, it also needs a bourbon brand as well. Beam has both in Sauza and Jim Beam, not to mention the excellent Maker's Mark. Any deal is expected to run pretty high as Beam's enterprise value is approximately $12 billion. A partner would help financially, but probably even more vital is its ability to lower anti-trust concerns. After all, Diageo is the world's largest liquor company; acquiring the fourth-largest would most certainly bring increased scrutiny from various countries including the U.S. and Great Britain. In addition, Diageo's got a lot on its plate right now including acquiring a majority control of India's largest liquor company, United Spirits and the potential purchase of 50% of Ketel One vodka it doesn't already own. It wouldn't be surprising if it passed as a result of its busy agenda but with others such as Bacardi and Pernod Ricard (OTC:PDRDY) likely interested, it stands to reason Diageo won't sit idly by while its competitors work a deal. Somebody will make a play for Beam in 2013.

SEE: Trademarks Of A Takeover Target

Monster Beverage (Nasdaq:MNST)
The final three months of 2012 were very turbulent for the maker of energy drinks. In October the U.S. Food and Drug Administration indicated that it was investigating five deaths associated with the consumption of Monster's energy drinks. In addition, a Maryland couple launched a wrongful death lawsuit against the company suggesting their daughter's consumption of two 24-ounce cans contributed to her death. The combination of events caused Monster's stock to crater 30% over three days of trading. One month later, the FDA came out and said that while it may require greater information on the cans about the caffeine content in its drinks and the possible side effects, etc., it did state that there are several products on the market (coffee and tea) containing caffeine that have been used safely for years. Since the news, its stock returned to previous levels around $50+. Unless something extraordinarily bad happens between the beginning and the end of 2013, I see Coca-Cola (NYSE:KO) being awfully interested in its approximate 35% market share. Coke continues to deny that it's interested but already distributing the product, it knows first-hand the popularity of Monster's energy drinks. Once the brouhaha over the wrongful death suit fades, look for Coke to pounce.

The Bottom Line
Despite Ernst & Young's dire prediction for M&A activity in 2013, I see all three stocks being legitimate acquisition targets in 2013.

At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.

Related Articles
  1. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!