Seven Signs Your Inventory is an Acquisition Target

Private equity doesn’t follow headlines. They hunt in silence.

Armed with over $2.5 trillion in dry powder (Moonfair, May 2025) PE companies are scanning the market for overlooked opportunities. At the same time, a new wave of activist campaigns is hitting businesses with soft margins, lazy capital allocations, or poorly performed business lines. The market may not come, but smart money already has it. This process is not about guesswork. There is an actual signal that the company shows when it moves from forgotten to target. I have spent 30 years studying these patterns, but when more than three appear at the same time, the playbook starts to take shape. If your company meets some of these criteria, it may already be under consideration for an acquisition. Here are some key factors to consider and potential timelines for the acquisition:

The first thing private equity wants is simple: Discounted, boring and reliable cash flow trading. If a company constantly generates EBITDA and trades at multiples below 10 times, that’s the goal. Think of models like long term contracts, essential services, or subscriptions, especially if the revenue is sticky. Public markets often overlook these businesses. However, in the private market, we see different stable cash engines that can be leveraged, optimized, and evaluated. Waste Management, Healthcare Services, Packages Here is an example from a textbook. These are not flashy names. Despite their obvious presence, they are often overlooked and underrated. But for Smart Capital, that’s the point. If revenue is reliable, if the valuation is low, the setup is already running.

The following flags are poorly performed: Decreasing performance is particularly concerning when compared to peers. Whether it is a delay in margins, a drop in returns to invested capital, or a series of expectations, it indicates a laxity in operations. And activists love the slack business. They do not avoid weakness. They see a value gap pleading for them to be closed. Sometimes the whole business is being dragged down, but more often it’s a conglomerate issue. A strong segment buried under a bloated cost structure or legacy unit. That’s exactly what created the (MMM) target. A solid industrial core hidden by lawsuits and noise is ripe for parting. In this game, slow performance is more than just a problem. It is an opportunity for those ready to force changes that the market ignores.

I love private equity Fragmented Industry Because fragmentation means opportunity. If single-player is not dominated, if the top five controls are less than 50% of the market, the integration is ripe. This is where PE companies go to work. Buy Best Run Operators, buy Bolts from small competitors, and drive the benefits of scales that the market is not priced. Collectives, dentistry, logistics, pet careand more Regional Finance. In these markets, the playbook is simple: Become an acquirer or get it. Either path leads to a reevaluation. In the case of PE, fragmentation is not chaotic. PE is ready to implement its structure and extract the alpha.

Hard assets are private equity magnets. If a company owns valuable real estate or infrastructure, its shares often fall below the true value of these underlying assets, especially when the company’s revenue profile appears to be average. However, PE companies know well. They don’t just buy a business. It also unlocks the balance sheet. Sale lease bag Classical movements monetize properties, continue to run operations, extract capital without touching on the profit and loss statement. This is the reason Casual dining chains like (Eat) and (bjri) Keep pop-up as a target. They sit in a major property. Take it home? If your company takes up space for others to rent and the market cannot value it, someone else will.

The company’s new leadership is by no means cosmetics, and is often the beginning of structural changes. Newly appointed leaders usually come with an a Fresh look and mandate:Reduce costs, review your portfolio and consider bold moves. Smart Money Watches take up space for others to rent, and the market cannot value fitness for change. Board departure is another matter. Whether it’s activist pressure or a shift towards a strategic direction, Many times new directors bring new agendas. If you start to hear phrases like “Exploring strategic alternatives” In revenue calls, it’s not filler. It’s the code for “the door is open.” For private equity and activists, leadership shakeups are not noise. For private equity and activists, leadership shakeups show opportunities.

It is important to be aware of early activists’ footprints and insider purchases. These signals often precede important changes. Small 13D filings, early jobs from known activist funds, or even quiet insider accumulation after the sale often precedes major moves. Activists aren’t always open to the public anytime soon. Before launching a campaign, you will research activists, develop stakeholders, and engage in behind the scenes. On the other hand, insider purchases, especially from C suites or executives, can send signals Internal trust in pending restructuring or sales. These are not random transactions. They are breadcrumbs of people who have better visibility. If you have the ability to interpret them, they can guide you to the next important event before it happens.

The market may make your business seem more complicated than it actually is. Inventory trades as if it is too complicated or broken, even if you can see a clear, cash-generating model that is often narrow and stable. That gap offers great opportunities for spinoffs, carve-outs, or part-total strategies. This strategy results in a significantly higher valuation when the company is split. Putting your company in the wrong peer group or its reporting structure can hide its true value. A smart investor can tell the real value in this noise. The playbook here is the same. Remove business distractions, cleanse your story more clearly and begin reassessing. When the market misleads the clarity of obstacles, private equity and activists intervene to correct the situation and profits from conflict.

Go beyond smart money

Just because a company lands on the acquisition watchlist doesn’t mean that stocks will pop out overnight. In fact, it often does nothing, trades sideways, or even drifts away. That’s the trap. Most investors lose interest and move on. But the moment could be a hit and it could be a 13D filing, a spinoff announcement, or a strategic review –The response is fast and merciless. This is where early placement before headings will provide a genuine alpha. By the time CNBC discusses, simple money has already disappeared. Private equity and activist investors don’t simply invest randomly in the market. These investors follow a pattern of frequent recurrence. You can do the same with attention. If a stock meets three or more of these criteria, someone has already modeled it. The actions they planned do not come slowly. They happen quickly and reward those who see the indicator early.

These situations are monitored every day on the edge. In this game, the Alpha is more than just a chance. It’s an intentional process.

On the date of publication, Jim Osman had no position (directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published barchart.com