ASX shares have been popular acquisition targets in recent times.
Notable takeovers include Sydney Airport, Class Limited and Australian Pharmaceutical.
Here are three more ASX shares with takeover potential.
1. Megaport Ltd (ASX: MP1)
Megaport provides Network-as-a-Service services to companies.
It’s similar to Amazon Web Services or Microsoft Azure, except it’s a neutral provider.
The business expects to be cash flow breakeven by the middle of 2022 and is the only NaaS of notable scale in the market.
Megaport doesn’t have many natural buyers, given its competitive edge is being able to integrate into any data centre or any cloud provider.
But it’s a unique business model with a long runway of growth ahead.
An IT distributor such as Cisco or VMware could be a natural acquirer and then use their extensive distribution teams to push Megaport’s products into bigger clients.
It may also be a private equity target. Public markets usually find it difficult to value infrastructure like ASX shares with sticky customers and an organic growth profile.
Sydney Airport, AusNet, and Spark New Zealand are all recent examples of this.
2. Xero Limited (ASX: XRO)
Similar to Altium Limited (ASX: ALU) – which has been a takeover target itself – Xero is a clear market leader in its software niche.
It’s clearly won the Australian and New Zealand markets. But has so far failed to replicate that same success abroad.
There’s every chance over time Xero is able to take market share abroad. But I’d argue that it’s more beneficial to an incumbent player and Xero to team up.
UK-based Sage could be a natural acquirer given its struggle to retain market share.
Intuit is the other logical suitor to create a duopoly with its dominant Quickbooks product in North America.
3. Pointsbet Holdings Ltd (ASX: PBH)
Of all the ASX shares listed as potential takeover targets, Pointsbet I think is the most likely candidate.
The company doesn’t have an issue growing. But it can’t do it profitably.
Subsequently, the share price is down 48% just in 2022 and 77% from its all-time high in 2021.
Pointsbet has two strategic assets, which are attractive to acquirers: customers and partnerships.
The business has 233,875 customers in Australia and 211,113 in North America.
Pointsbet also has a 5-year exclusive marketing partnership with NBC Sports, which hosts the Olympics, NFL, NFL, English Premier League, and golf tournaments.
Another reason for the takeover interest is that the online betting market, particularly in the US, is oversaturated.
There are too many players making no money. Industry rationalisation is required.
Therefore, I believe one of the large players like FanDuel or DraftKings could run the ruler over Pointsbet.
