Corporate takeover activity is likely to heat up in 2018, according to Deloitte. The Big Four public accounting and consulting firm received responses from 1,016 executives at U.S.-based corporations and private equity firms, with increased deal flow versus 2017 being expected by 68% of the former and 76% of the latter. Additionally, 63% of respondents anticipated that the average deal size also will increase.

Deloitte's survey was conducted in September 2017, and 12% of respondents cited delayed pro-business legislation as a potential obstacle to M&A activity. However, the subsequent passage of tax reform in Washington means that those concerns should have abated, in Deloitte's estimation. Moreover, even prior to the passage of tax reform, respondents had indicated that corporate cash balances were up, and that M&A activity was their top intended use of those additional funds.

Takeover Targets

Goldman Sachs Group Inc. (GS) has identified 17 companies that are likely takeover targets in 2018. In a previous article, Investopedia discussed eight of Goldman's picks, as well as four pharmaceutical companies that may be in play according to Zacks Investment Research. 

Below are eight more stocks on Goldman's list, with their market caps as of January 17, 2018, and brief explanations of what they do. (For more, see also: 8 Stocks Poised to Gain on Takeovers in 2018.)

In software and services:

  • Twilio Inc. (TWLO), $2.3B, communications software, cloud platform & services
  • Cornerstone Ondemand Inc. (CSOD), $2.3B, learning & talent management SaaS
  • Hortonworks Inc. (HDP), $1.4B, software development on Apache Hadoop platform

In energy:

  •  RSP Permian Inc. (RSPP), $6.5B, oil & gas, Permian Basin, Texas
  • Jagged Peak Energy Inc. (JAG), $3.2B, oil & gas, Southern Delaware Basin, Texas

In tech hardware:

  • Lumentum Holdings Inc. (LITE), $3.2B, optical networking & laser products
  • Acacia Communications Inc. (ACIA), $1.6B, fiber optic component maker

In capital goods:

  • Manitowoc Co. Inc. (MTW), $1.4B, maker of large construction cranes

The odds of these becoming successful acquisitions are enhanced by their market values, which mostly are either small-cap or low mid-cap, making them digestible by a range of potential buyers. Their relatively small sizes also increase their probability of being under the regulatory radar.

Goldman's Approach

In particular, Goldman Sachs looked for companies that probably will not encounter regulatory hurdles on antitrust or anti-competitive grounds. They replicated the analytic methodology frequently applied by regulators to assess the degree of competition in a given market, as described in the earlier Investopedia article cited above. Another criterion for inclusion were odds of 30% to 50% that a company would be a buyout target, in the judgment of Goldman's analysts.

Lastly, Goldman suggests that investors look at M&A activity as a potential source of capital gains in 2018 given their low expectations for U.S. equities this year. Their year-end target value of 2,850 for the S&P 500 Index (SPX) is only 1.7% above its January 17 close.

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