There are signs of change in the M&A market. Bank of America gives their buyout candidates

Published Mon, Oct 17 202212:08 PM EDT

Health and tech are providing heat in what is otherwise a lukewarm year for merger and acquisition deals, according to Bank of America. The bank reported 150 deals so far this year, which annualized comes in about 9% lower than last year. That makes sense given lower market returns typically make for a weaker deal landscape, said strategist Jill Carey Hall. But health care and tech are on pace for their best dealmaking years since 1997 and 2016, respectively. Deals in biotech is specifically up due to cheaper valuations, vulnerable sellers and a growing interest in big pharma. Tech, led by software, is also up because of ample cash from strategic acquirers and sub-sector fragmentation that is leaving small fish for those with bait. Bank of America screened for small-cap companies that could have merger or acquisition potential. Hall looked for Russell 2000 stocks that met the following criteria: Single share class Have more than 90% of share available for purchase Three years of positive operating cash flow The bank also looked for stocks with median net debt to earnings before interest and tax that was below the industry group and a 15% discount to median industry group valuation for enterprise value, or a company's total value, compared to operating cash flow, free cash flow and earnings before interest and tax. While Hall noted there is no way to know if a company will be part of a merger or acquisition until it happens, these stocks are among those primed for a deal. InterDigital , a company focused on immersive technology for wireless and video, signed a seven-year patent deal with Apple earlier this month valued at more than $900 million. It also boosted its revenue outlook for the third quarter to between $112 million and $115 million from between $96 million and $100 million. The stock is down 32.9% this year, performing slightly below the tech-heavy Nasdaq. Perdoceo Education , which uses technology to operate for-profit higher education institutions, also made the list. The company reported earlier this summer that revenue, operating income and student enrollments at two of its largest schools were all down for the quarter and year compared to the same respective periods a year ago. It is beating the Nasdaq but down 10.5% so far this year. Vanda Pharmaceuticals , known for its sleep and schizophrenia treatments, announced a partnership with OilPass to research and develop modified peptide nucleic acid. Vanda has shed 36.2% year to date. Meanwhile, Supernus announced last week it needed to answer further questions from the Food and Drug Administration to get its drug infusion device for treating Parkinson's disease "back on track towards potential U.S. approval." The pharmaceutical company's shares have jumped 13.6% this year. — CNBC's Michael Bloom contributed to this report.

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