A surge of M&A activity involving healthcare, financial, and retail companies boosted the value of deals in July to over $430 billion, resulting in the seventh-busiest month on record in terms of value. Healthcare and energy M&A activity has been the most prominent this year, while the healthcare industry in particular has seen the busiest year on record. Healthcare deals represent approximately 16% of the total global M&A deals this year, which amounts to $2.99 billion. However, Goldman Sachs believes that more deals will come in the months ahead, so risk takers might find great buying opportunities among potential M&A players. Goldman Sachs identified a few healthcare companies that are expected to be the next takeover targets in the industry. In the following article, we will be discussing the following potential targets suggested by the investment bank, which are Pacira Pharmaceuticals Inc. (NASDAQ:PCRX), Anacor Pharmaceuticals Inc. (NASDAQ:ANAC), and Brookdale Senior Living Inc. (NYSE:BKD).
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by more than 60 percentage points (see the details here).
Let’s start by looking into Pacira Pharmaceuticals Inc. (NASDAQ:PCRX), a specialty pharmaceutical company that develops and commercializes proprietary pharmaceutical products for use in U.S. hospitals and ambulatory surgery centers. There are 25 hedge funds tracked by Insider Monkey that own stakes in the company as of June 30, two less than did on March 31. Despite this slight decrease, the value of these stakes rose to $367.67 million from $254.29 million during the second quarter. Goldman Sachs suggests that the company’s key product Exparel, approved for administration into the site of surgery to produce post-surgery pain relief, is an “underappreciated asset” and could eventually turn into a near-term catalyst for the stock. The investment bank expects better-than-expected monthly sales data for this product. John Lykouretzos’ Hoplite Capital Management initiated a new position in Pacira Pharmaceuticals Inc. (NASDAQ:PCRX) comprised of 1.26 million shares.
Let’s turn our attention next to Anacor Pharmaceuticals Inc. (NASDAQ:ANAC), which was owned by 34 hedge funds observed by our team at the end of the latest quarter, compared to 26 at the end of the first quarter. At the same time, the total investments in the company increased to $1.01 billion from $893.70 million. The stock has had a great run this year, delivering a year-to-date return of over 311%. This great stock performance has been achieved thanks to the company’s recently-released positive top-line results from two pivotal Phase III trials for crisaborole topical ointment as a treatment for atopic dermatitis or eczema. As a result, the company plans to file a New Drug Application with the U.S. FDA in the first half of 2016, which suggests that Anacor Pharmaceuticals Inc. (NASDAQ:ANAC) is very close to bringing its product to the market. The potential of this drug is immense, as the product is set to become a first line treatment for this skin condition that affects approximately 25 million Americans. From the massive pool of hedge funds tracked by Insider Monkey, Julian and Felix Baker’s Baker Bros. Advisors represents the largest shareholder of Anacor, with 3.63 million shares as of June 30.
Moving on to the last potential takeover candidate, the number of hedge funds within our database that held stakes in Brookdale Senior Living Inc. (NYSE:BKD) remained unchanged at 64 during the last two quarters. In the meantime, the value of these stakes fell to $2.71 billion from $3.03 billion over the second quarter. The company had a very rough summer and its stock has dropped by over 25% since the beginning of the year. It seems that the shares of Brookdale Senior Living Inc. (NYSE:BKD) are currently in a bottoming-out phase, so investors, traders, and other market participants might find a good buying opportunity in this stock. Goldman Sachs claims that the stock has been partially pushed lower by the most recent flu season, which “drove higher mortality, hospitalization and facility quarantines across the industry”. At the same time, the company has also had a hard time integrating Emeritus, an assisted living center that it acquired last year. Larry Robbins’ Glenview Capital occupies the spot of the largest shareholder of Brookdale Senior Living within our database, owning 11.59 million shares.
Disclosure: None
