Though initial public offerings are heating up, 2024 has thus far been disappointing for investors looking for merger stocks to buy. The year’s first few months saw the iRobot (NASDAQ:IRBT) and Southwest Airlines (NYSE:LUV) deals scuttled, dashing merger arbitrage investors’ hopes of a quick payday and all-but-guaranteed upside.
But don’t let a few big-name failures turn you away from merger stock-buying opportunities. While nothing in life is guaranteed, the first two merger stocks to buy on this list are all but done deals, expected to close within the next few months. While the third is a bit of a wildcard, its inherent nature also points to significant upside potential — no matter how the merger ultimately goes.
Agrify (AGFY)
First up on this list of merger stocks to buy is a dual threat: a perfect merger arbitrage opportunity and a penny stock. Investors can easily accumulate a large position in Agrify Corp (NASDAQ:AGFY) before its imminent buyout by Nature’s Miracle (NASDAQ:NMHI). In this case, we’re looking at micro-cap stocks merging to create new synergies and, hopefully, begin trending upward toward small-cap status (Agrify’s current market cap is just $4.25 million; Nature’s Miracle is a hair under $22.5 million).
Nature’s Miracle is a vertical farming stock. Agrify offers a range of products and services across the cannabis value chain, including facility design, training, project management and equipment sales that support the plant’s cultivation and processing cycle. The merger deal, priced at $6.35 million, is equivalent to $0.4185 per share of Agrify — a nearly 40% premium over today’s per-share pricing. Better yet, the merger makes sense and could be fruitful if you retain the converted stock post-merger.
Most notably, Nature’s Miracle is effectively buying access to Agrify’s AI-powered software and hardware cannabis-growing tech and integrating it within its product line. As cannabis rescheduling and similar early legalization efforts begin taking hold, this micro-cap merger could quickly become a big winner, considering each company is effectively agnostic as to which brands or companies end up the biggest distributors or sellers. The deal is expected to close before October.
Six Flags Entertainment (SIX)
Six Flags Entertainment’s (NYSE:SIX) merger will likely close sooner than Agrify’s, with its buyout of Cedar Fair (NYSE:FUN) originally expected to close within 2024’s first six months. Astute readers know that May is the 5th month, and both companies affirmed that the deal is still on track in their first-quarter earnings reports — so there’s little chance the merger will take more than 45 days or so from this point forward, and hopefully a bit sooner.
The deal won’t give current Six Flags investors much per-share upside from today’s pricing, but it will come with an additional benefit. Each shareholder will get a special, one-time dividend of $1 when their stock converts at a 0.58 exchange ratio. Better yet, both companies represent a uniquely formidable force within theme parks and entertainment; Deutsche Bank says shares are worth about $29 in anticipation of market synergies and efficiencies created by merging. That target represents an 8% premium over today’s pricing despite the stock’s value remaining in line with the existing merger agreement.
Banco De Sabadell (BNDSY)
In a much more aggressive move, large Spanish bank BBVA (NYSE:BBVA) recently announced its intent to fight for control of Banco De Sabadell (OTCMKTS:BNDSY), a mid-cap Spanish financial services and banking firm. BBVA originally offered the bank’s board $12.87 billion in a friendly bid for control. Management rejected the offer, which spurred BBVA’s direct appeal to shareholders, which they described as an “extraordinarily attractive offer to create a bank with greater scale.”
The hostile takeover attempt puts Banco De Sabadell’s per-share pricing at about $4.78, or 16% higher than today. If you buy into Banco De Sabadell today, expect significant volatility and potential downside, with a caveat. If Banco De Sabadell beats the takeover, they’ve successfully fended off a massive competitor, and per-share pricing will likely surge. On the other hand, if BBVA gets sufficient shareholders on board, then Banco De Sabadell is now part of a much larger entity that purchased it at a premium — and shares may surge. Ultimately, though risky, this potential merger represents the most upside opportunity as the situation evolves rather than part of a fixed, friendly agreement.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
