A checklist to spot potential takeover targets

Investing is about managing uncertainty. Share prices move in ways we can’t predict, and that’s especially true when it comes to takeovers. The key question for investors is this: are takeovers completely random, or do they leave detectable fingerprints?

If someone tells you this or that company will go up, you may be speaking to a crook, perhaps someone like Gordon Gekko, the villain in Wall Street who boasts: ‘I only bet sure things.’ Gekko was loosely based on Ivan Boesky, who in the 1980s made a fortune trading on confidential takeover information. Boesky would source insider secrets, buy up shares in takeover targets and sell after the price pop. It was a foolproof strategy, precisely because it was illegal.

In the movie, Gordon Gekko tracks the private jets of corporate executives, as if air traffic can be used to predict takeover bids. The irony is that investors don’t need inside information to improve their odds. There is no magic formula to predict takeovers, but investors can tilt the probabilities in their favour by using publicly available data.

That is what we have done, as part of a deep dive series into takeovers. I’ve worked with Mark and our intern, Joe Hodges, to...