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September 16, 2017

Thinking of a takeover…Well how about ‘The Acquirer’s Multiple’

The Acquirer’s Multiple – Background
Many people have heard of the infamous Magic Formula documented by Joel Greenblatt in his book “The Little Book That Beats the Market” which is a direct quantitative value investment model in ranking stocks by price and ROIC. In a similar nature, The Acquirer’s Multiple founded by Tobias Carlisle is a valuation technique, combining both value + quality in order to find the top 30 most attractive takeover candidates, based on the investment strategy described in his superb book “Deep Value: Why Activist and Other Contrarians Battle for Control of Losing Corporations.”

This is a form of Deep Value investing, and it was the original investment style that Warren Buffett used while he was learning under his mentor Benjamin Graham. In a nutshell, deep value investors are concerned about protecting their downside, and look for undervalued stocks with a large margin of safety between value and price – “Corporate gold dollars are now available for 50 cents or less – but they do have strings attached.” – Benjamin Graham (1932).

The Makeup of The Acquirer’s Multiple

The premise of the methodology is to examine several financial statement pieces such as debt, preferred stock, minority interests, interest, depreciation, and amortization. The actual formulation is:
Enterprise Value / Operating Earnings (TTM)

You can use MarketXLS formulas like shown below to calculate The Acquirer’s Multiple.
The Acquirer's Multiple

Using the same formulas, we calculated the Acquirer’s multiple for all of the S&P 500 stocks. Below are the top 10 companies with lowest figures.

For the Q2 2017, below is the full list of S&P stocks with their respective Acquirer’s Multiple Values.

Symbol

Name

The Acquirer’s Multiple

HRB

Block H&R

5.3

GNW

Genworth Financial Inc.

8.5

SWN

Southwestern Energy

18.3

CNX

CONSOL Energy Inc.

21.6

MU

Micron Technology

21.6

UAL

United Continental Holdings

22.1

INTU

Intuit Inc.

22.3

VIAB

Viacom Inc.

23.3

CHK

Chesapeake Energy

23.4

DAL

Delta Air Lines

23.5

GILD

Gilead Sciences

24.7

LYB

LyondellBasell

25.2

GME

GameStop Corp.

26.9

TROW

T. Rowe Price Group

27.0

XL

XL Capital

27.5

ETFC

E*Trade

28.3

FTI

FMC Technologies Inc.

28.6

AFL

AFLAC Inc

28.8

HUM

Humana Inc.

28.8

AET

Aetna Inc

29.0

TSCO

Tractor Supply Company

29.2

BEN

Franklin Resources

29.7

AIZ

Assurant Inc

30.7

LNC

Lincoln National

31.2

AAL

American Airlines Group

31.2

SNI

Scripps Networks Interactive Inc.

31.6

DISCA

Discovery Communications-A

31.8

LUV

Southwest Airlines

32.4

CMA

Comerica Inc.

32.6

PKI

PerkinElmer

32.6

AA

Alcoa Inc

33.5

GPS

Gap (The)

33.5

SCHW

Charles Schwab Corporation

33.7

UNM

Unum Group

33.7

AN

AutoNation Inc

34.1

DHI

D. R. Horton

34.4

TGT

Target Corp.

34.5

BWA

BorgWarner

35.7

BAC

Bank of America Corp

36.1

ESRX

Express Scripts

36.3

VZ

Verizon Communications

36.5

KORS

Michael Kors Holdings

36.7

MAS

Masco Corp.

36.7

BBBY

Bed Bath & Beyond

36.9

WFC

Wells Fargo

37.3

CI

CIGNA Corp.

38.2

HOG

Harley-Davidson

39.2

FDX

FedEx Corporation

39.5

OMC

Omnicom Group

39.5

VLO

Valero Energy

39.6

NUE

Nucor Corp.

39.7

HPQ

Hewlett-Packard

39.7

DFS

Discover Financial Services

40.1

NTAP

NetApp

40.1

JPM

JPMorgan Chase & Co.

40.6

GRMN

Garmin Ltd.

40.7

ZION

Zions Bancorp

40.7

ALL

Allstate Corp

40.8

LRCX

Lam Research

41.1

EA

Electronic Arts

41.7

TSN

Tyson Foods

41.7

MPC

Marathon Petroleum

42.2

WRK

Westrock Co

42.5

FE

FirstEnergy Corp

42.5

JNPR

Juniper Networks

42.6

SIG

Signet Jewelers

42.7

GLW

Corning Inc.

42.8

INTC

Intel Corp.

43.1

ANTM

Anthem Inc.

43.2

OI

Owens-Illinois Inc

43.6

HCA

HCA Holdings

43.8

AIG

American International Group

43.8

RF

Regions Financial Corp.

44.4

RHI

Robert Half International

44.7

MTB

M&T Bank Corp.

45.3

EMN

Eastman Chemical

45.3

PPG

PPG Industries

45.3

DVN

Devon Energy Corp.

45.7

STI

SunTrust Banks

45.8

KLAC

KLA-Tencor Corp.

46.0

PNW

Pinnacle West Capital

46.0

TMK

Torchmark Corp.

46.4

ROST

Ross Stores

46.5

NEM

Newmont Mining Corp. (Hldg. Co.)

46.5

FCX

Freeport-McMoran Cp & Gld

46.6

TRV

The Travelers Companies Inc.

47.1

JEC

Jacobs Engineering Group

47.1

LM

Legg Mason

47.3

IR

Ingersoll-Rand PLC

47.5

T

AT&T Inc

47.6

BA

Boeing Company

47.6

ORLY

O'Reilly Automotive

47.8

PWR

Quanta Services Inc.

47.9

PGR

Progressive Corp.

48.1

UHS

Universal Health Services

48.1

NSC

Norfolk Southern Corp.

48.3

URI

United Rentals

48.4

GPC

Genuine Parts

48.9

CB

Chubb Corp.

49.1

GT

Goodyear Tire & Rubber

49.4

MO

Altria Group Inc

49.4

UPS

United Parcel Service

49.6

UNP

Union Pacific

49.8

MCO

Moody's Corp

49.9

CBG

CBRE Group

50.0

DE

Deere & Co.

50.6

WU

Western Union Co

50.6

DIS

The Walt Disney Company

50.8

AMAT

Applied Materials Inc

51.2

MON

Monsanto Co.

51.2

DG

Dollar General

51.6

PCAR

PACCAR Inc.

51.7

LLL

L-3 Communications Holdings

51.8

EXPD

Expeditors Int'l

51.9

AXP

American Express Co

51.9

TXN

Texas Instruments

52.4

UTX

United Technologies

52.5

AMG

Affiliated Managers Group Inc

52.7

IVZ

Invesco Ltd.

52.7

NFX

Newfield Exploration Co

52.8

AEE

Ameren Corp

52.8

KSU

Kansas City Southern

52.9

SWKS

Skyworks Solutions

53.1

BLK

BlackRock

53.2

HBI

Hanesbrands Inc

53.2

KR

Kroger Co.

53.4

FFIV

F5 Networks

53.4

COF

Capital One Financial

53.4

PNR

Pentair Ltd.

53.4

UNH

United Health Group Inc.

53.6

CSCO

Cisco Systems

53.7

XRX

Xerox Corp.

53.9

WDC

Western Digital

54.0

FAST

Fastenal Co

54.0

TAP

Molson Coors Brewing Company

54.0

RRC

Range Resources Corp.

54.1

AES

AES Corp

54.1

WMT

Wal-Mart Stores

54.3

LEN

Lennar Corp.

54.3

CA

CA

54.8

AMGN

Amgen Inc

55.0

IPG

Interpublic Group

55.5

PSX

Phillips 66

55.6

BIIB

BIOGEN IDEC Inc.

55.8

PFG

Principal Financial Group

55.8

XEC

Cimarex Energy

56.0

GM

General Motors

56.2

USB

U.S. Bancorp

56.2

PNC

PNC Financial Services

56.3

TWX

Time Warner Inc.

56.5

ABBV

AbbVie

56.6

HRL

Hormel Foods Corp.

56.7

DGX

Quest Diagnostics

57.1

TJX

TJX Companies Inc.

57.2

NOC

Northrop Grumman Corp.

57.2

PDCO

Patterson Companies

57.2

BBT

BB&T Corporation

57.2

EMR

Emerson Electric Company

57.3

KSS

Kohl's Corp.

57.3

VRSN

Verisign Inc.

57.4

BBY

Best Buy Co. Inc.

57.4

GWW

Grainger (W.W.) Inc.

57.8

DLPH

Delphi Automotive

57.8

TEL

TE Connectivity Ltd.

57.8

DVA

DaVita Inc.

57.9

ORCL

Oracle Corp.

58.0

MHK

Mohawk Industries

58.0

M

Macy's Inc.

58.1

AAP

Advance Auto Parts

58.3

AON

Aon plc

58.4

PH

Parker-Hannifin

58.4

GD

General Dynamics

58.5

DOV

Dover Corp.

58.7

MMC

Marsh & McLennan

58.9

KEY

KeyCorp

59.1

CHRW

C. H. Robinson Worldwide

59.2

L

Loews Corp.

59.3

HON

Honeywell Int'l Inc.

59.4

JWN

Nordstrom

59.8

NDAQ

NASDAQ OMX Group

60.1

RTN

Raytheon Co.

60.8

CTSH

Cognizant Technology Solutions

60.9

BK

The Bank of New York Mellon Corp.

60.9

TXT

Textron Inc.

61.0

HST

Host Hotels & Resorts

61.0

HD

Home Depot

61.1

WBA

Walgreens Boots Alliance

61.2

DLTR

Dollar Tree

61.2

MMM

3M Company

61.4

OXY

Occidental Petroleum

61.6

SYY

Sysco Corp.

61.9

ITW

Illinois Tool Works

62.1

FLS

Flowserve Corporation

62.1

WM

Waste Management Inc.

62.7

LH

Laboratory Corp. of America Holding

62.8

LMT

Lockheed Martin Corp.

62.9

CSX

CSX Corp.

63.0

LEG

Leggett & Platt

63.0

PFE

Pfizer Inc.

63.1

FOX

Twenty-First Century Fox Class B

63.1

SWK

Stanley Black & Decker

63.2

ES

Eversource Energy

63.6

COL

Rockwell Collins

63.7

SCG

SCANA Corp

63.8

RL

Polo Ralph Lauren Corp.

64.2

WHR

Whirlpool Corp.

64.3

ADM

Archer-Daniels-Midland Co

64.4

KMB

Kimberly-Clark

64.5

DPS

Dr Pepper Snapple Group

64.6

ALLE

Allegion

64.7

PEP

PepsiCo Inc.

64.8

COH

Coach Inc.

64.8

GIS

General Mills

65.0

SEE

Sealed Air Corp.(New)

65.0

DRI

Darden Restaurants

65.2

MCD

McDonald's Corp.

65.3

NEE

NextEra Energy

65.4

CAH

Cardinal Health Inc.

65.5

MET

MetLife Inc.

65.8

PBI

Pitney-Bowes

65.8

RAI

Reynolds American Inc.

66.4

FITB

Fifth Third Bancorp

67.0

JBHT

J. B. Hunt Transport Services

67.2

V

Visa Inc.

67.4

KMX

Carmax Inc

67.4

DNB

Dun & Bradstreet

67.5

CPB

Campbell Soup

67.7

KIM

Kimco Realty

67.7

PCG

PG&E Corp.

68.0

ETN

Eaton Corporation

68.1

HBAN

Huntington Bancshares

68.1

C

Citigroup Inc.

68.3

F

Ford Motor

68.3

IBM

International Bus. Machines

68.4

MAR

Marriott Int'l.

68.8

RSG

Republic Services Inc

69.1

AME

Ametek

69.2

NLSN

Nielsen Holdings

69.4

AEP

American Electric Power

69.4

SHW

Sherwin-Williams

69.7

MSI

Motorola Solutions Inc.

69.8

JCI

Johnson Controls

70.0

WEC

Wisconsin Energy Corporation

70.2

PAYX

Paychex Inc.

70.4

KHC

Kraft Heinz Co

70.5

DD

Du Pont (E.I.)

70.7

ADS

Alliance Data Systems

70.8

FLIR

FLIR Systems

71.2

HRS

Harris Corporation

71.4

CMS

CMS Energy

71.6

K

Kellogg Co.

71.6

RCL

Royal Caribbean Cruises Ltd

71.6

CAT

Caterpillar Inc.

71.7

EFX

Equifax Inc.

71.9

ROK

Rockwell Automation Inc.

72.1

MLM

Martin Marietta Materials

72.2

APH

Amphenol Corp A

72.4

CNP

CenterPoint Energy

72.7

NKE

Nike

73.3

ICE

Intercontinental Exchange

73.4

DUK

Duke Energy

73.5

LOW

Lowe's Cos.

73.6

AAPL

Apple Inc.

73.8

JNJ

Johnson & Johnson

73.9

TIF

Tiffany & Co.

74.4

IFF

Intl Flavors & Fragrances

74.6

BMY

Bristol-Myers Squibb

74.7

PXD

Pioneer Natural Resources

75.1

STX

Seagate Technology

75.3

WFM

Whole Foods Market

75.9

KO

The Coca Cola Company

76.1

MYL

Mylan N.V.

76.2

HSIC

Henry Schein

76.8

URBN

Urban Outfitters

76.8

MA

Mastercard Inc.

77.0

SRE

Sempra Energy

77.1

EIX

Edison Int'l

77.5

KMI

Kinder Morgan

77.5

PX

Praxair Inc.

77.7

PM

Philip Morris International

77.8

XEL

Xcel Energy Inc

77.9

PPL

PPL Corp.

78.0

LLY

Lilly (Eli) & Co.

78.1

VAR

Varian Medical Systems

78.4

MRK

Merck & Co.

78.9

TSS

Total System Services

78.9

R

Ryder System

79.5

MNST

Monster Beverage

79.5

SBUX

Starbucks Corp.

80.1

COST

Costco Co.

80.3

CTAS

Cintas Corporation

80.8

PG

Procter & Gamble

81.0

IRM

Iron Mountain Incorporated

81.0

FISV

Fiserv Inc

81.0

VRSK

Verisk Analytics

81.1

YUM

Yum! Brands Inc

82.6

HSY

The Hershey Company

83.2

STZ

Constellation Brands

83.4

DTE

DTE Energy Co.

83.7

XYL

Xylem Inc.

85.5

LVLT

Level 3 Communications

85.6

MCK

McKesson Corp.

85.7

THC

Tenet Healthcare Corp.

86.0

PHM

Pulte Homes Inc.

86.2

CL

Colgate-Palmolive

86.4

MS

Morgan Stanley

86.5

XOM

Exxon Mobil Corp.

86.5

CINF

Cincinnati Financial

86.7

OKE

ONEOK

86.8

CERN

Cerner

87.8

LB

L Brands Inc.

87.8

CELG

Celgene Corp.

87.9

ED

Consolidated Edison

88.1

MNK

Mallinckrodt Plc

88.2

MSFT

Microsoft Corp.

88.4

ZTS

Zoetis

89.3

QCOM

QUALCOMM Inc.

89.6

A

Agilent Technologies Inc

89.9

XLNX

Xilinx Inc

90.2

CTL

CenturyLink Inc

90.5

MDT

Medtronic plc

91.5

MCHP

Microchip Technology

91.5

VMC

Vulcan Materials

92.0

PBCT

People's United Financial

92.0

NWL

Newell Rubbermaid Co.

94.5

PVH

PVH Corp.

94.6

AKAM

Akamai Technologies Inc

94.9

ACN

Accenture plc

95.2

ROP

Roper Industries

95.4

SJM

Smucker (J.M.)

95.5

FB

Facebook

95.9

EBAY

eBay Inc.

97.4

REGN

Regeneron

98.1

WAT

Waters Corporation

98.7

CTXS

Citrix Systems

99.5

D

Dominion Resources

100.5

MKC

McCormick & Co.

100.6

MOS

The Mosaic Company

101.6

TRIP

TripAdvisor

101.7

DHR

Danaher Corp.

101.7

PRU

Prudential Financial

102.4

CBS

CBS Corp.

102.6

BAX

Baxter International Inc.

102.6

PSA

Public Storage

102.9

FIS

Fidelity National Information Services

104.3

ECL

Ecolab Inc.

104.8

PCLN

Priceline.com Inc

105.8

WYN

Wyndham Worldwide

106.5

WMB

Williams Cos.

108.5

ADP

Automatic Data Processing

109.1

CMG

Chipotle Mexican Grill

109.5

BLL

Ball Corp

114.0

EQR

Equity Residential

115.0

PLD

Prologis

116.1

MDLZ

Mondelez International

117.0

VNO

Vornado Realty Trust

117.3

EQT

EQT Corporation

118.6

CVX

Chevron Corp.

118.9

WYNN

Wynn Resorts Ltd

119.8

EW

Edwards Lifesciences

120.0

ETR

Entergy Corp.

120.1

SPG

Simon Property Group Inc

122.7

BXP

Boston Properties

123.0

FMC

FMC Corporation

123.8

CF

CF Industries Holdings Inc

124.8

HCN

Welltower Inc.

124.8

GE

General Electric

125.8

SYK

Stryker Corp.

125.8

ISRG

Intuitive Surgical Inc.

126.1

GGP

General Growth Properties Inc.

126.4

HAS

Hasbro Inc.

126.8

BCR

Bard (C.R.) Inc.

128.2

PEG

Public Serv. Enterprise Inc.

128.5

ALXN

Alexion Pharmaceuticals

130.0

ZBH

Zimmer Biomet Holdings

130.4

ATVI

Activision Blizzard

131.4

CME

CME Group Inc.

132.0

FSLR

First Solar Inc

132.4

CCL

Carnival Corp.

133.6

ABC

AmerisourceBergen Corp

134.3

TMO

Thermo Fisher Scientific

135.4

VTR

Ventas Inc

138.3

ADBE

Adobe Systems Inc

140.0

O

Realty Income Corporation

140.9

PYPL

PayPal

141.5

GOOGL

Alphabet Inc Class A

143.7

NVDA

Nvidia Corporation

148.1

APD

Air Products & Chemicals Inc

149.9

VFC

V.F. Corp.

151.9

LUK

Leucadia National Corp.

154.1

EXC

Exelon Corp.

157.5

EL

Estee Lauder Cos.

159.9

DO

Diamond Offshore Drilling

165.3

GS

Goldman Sachs Group

173.8

ESS

Essex Property Trust Inc

175.4

RHT

Red Hat Inc.

179.6

ESV

Ensco plc

182.9

MAC

Macerich

187.2

ABT

Abbott Laboratories

190.8

CCI

Crown Castle International Corp.

192.9

WY

Weyerhaeuser Corp.

201.6

EQIX

Equinix

216.4

SLG

SL Green Realty

219.4

COG

Cabot Oil & Gas

219.4

EXPE

Expedia Inc.

225.8

HCP

HCP Inc.

236.7

ADI

Analog Devices

244.2

MUR

Murphy Oil

270.5

BSX

Boston Scientific

290.7

IP

International Paper

312.0

HAL

Halliburton Co.

382.2

EOG

EOG Resources

434.2

AMZN

Amazon.com Inc

563.7

NAVI

Navient

647.7

SLB

Schlumberger Ltd.

654.0

VRTX

Vertex Pharmaceuticals Inc

854.1

NFLX

Netflix Inc.

960.2

NI

NiSource Inc.

964.6

TDC

Teradata Corp.

3210.1

The Enterprise Value is the total cost to buy out a company and it is calculated as:
Market Cap + Preferred Equity + Non-controlling Interests + Total Debt – Cash and Cash Equivalents

The reason why we use this rather than just the Market Cap (Share price x Total Shares Outstanding) is that it includes additional liabilities such as debt, preferred equity and non-controlling interests which the owner will need to adjust for.

It uses Operating Earnings rather than EBIT, whilst similar have a distinction in that Operating Earnings is calculated from the top down whilst EBIT is constructed from the bottom up. This process allows us to use a variable that is standard and can be compared on a like for like basis across different companies, industries, and sectors.

Operating Earnings is calculated as:
Revenue – (Costs of Goods sold + Selling, General and Admin costs + Depreciation and Amortization)

Interest repayments reduce earnings and are tax-deductible, so a company’s debt impacts it’s reported earnings and therefore removing this and tax allows us to compare companies with different capital structures.

Final Words

To sum up, this is a great process for identifying shares that have an optimal blend of value and quality in your chosen market that is not only simple but as effective as Joel Greenblatt’s Magic Formula. I would love to find out your thoughts and personal experiences on The Acquirer’s Multiple below…

Author: Luckjit Lalli

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