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

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. Stock Analysis

    How Toyota Succeeds at Home and Abroad (TM)

    Japan's biggest car manufacturer is also one of North America's biggest, delighting shareholders with its high profit margins.
  2. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  3. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  4. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  5. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  6. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  7. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  8. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  9. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  10. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Trading Center