MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.

Today we hear from Marc Whittaker,​ portfolio manager & Senior Equities Analyst at IML.


Small cap industrials likely to see strong M&A activity in 2024

As small cap investors, IML has seen this dynamic start to move, with no less than nine takeover offers in its portfolios in the second half of 2023, across very different sectors, from:



Marc says that while these companies all share that unique add-on value for their variety of buyers, they still represent almost all corners of the broader Aussie market.

Read More: Fantasy M&A: Which ASX fundie would you acquire?

“They’re all in different sectors with very different business drivers, they are all examples of businesses with good strategic value and strong competitive advantage, and trading at very attractive valuations.

“This combination of factors has prompted a wave of corporate and private equity buyers to sweep in and take these stocks out of the market.”

According to IML, the sparkling renaissance in Aussie M&A, has been largely driven by the alignment of three particular stars.

“And it’ll be these these factors will ensure that M&A remains a theme into 2024,” Marc says.


ASX M&A drivers in 2023/2024:

  1. The economy is entering a low growth environment, with population growth contributing most of that growth. One of the few significant ways for companies to generate meaningful growth is via sensibly priced, strategic M&A.

  2. Interest rates appear to have peaked and are likely to head lower over time. This has given Boards and management teams confidence to commit to M&A, combined with corporate balance sheets that are in pretty good shape.

  3. Valuations remain attractive, particularly in the Small Industrials part of the market. This is despite the rally we saw in Small Industrials towards the end of last year, which has come on the back of a 3-year bear market in small industrials and which we would argue still has a long way to play out.


Take a number: Likely small-mid cap ASX M&A targets this year:

In that context, here’s Marc’s ASX-listed small companies which IML believes are strong candidates for M&A interest heading into the new year:


Austal (ASX:ASB)

The week before Christmas, Austal surged on the back of two deals with the Australian Government and US Navy, totalling over $1.3bn.

Marc calls ASB one of the country’s prime national and US defence naval contractors.

Austal is operating at its best and will get better. It has a strong – and growing – long-term order book and we’ve seen over time just how many previous indications of corporate interest there’s been.”

Austal USA has delivered 13 EPFs, a predecessor to the new Expeditionary Medical Ships (EMS) design, of which the United States Navy has just ordered another three.

The company is also preparing to deliver the first EPF Flight II, the future USNS Cody (EPF 14), features enhanced Role 2E medical capability, and has two more Flight II vessels under construction.

Kelsian Group (ASX:KLS)

Kelsian is Australia’s largest listed provider of public transport bus and ferry services.

The market was underwhelmed by its recent result, Marc says, with bus driver shortages in Adelaide, Sydney, and Singapore impacting its ability to meet service requirements under each of its contracts.

“However, those bus driver shortages are now abating. Kelsian is also fully staffed up to service its recently won bus contracts in Western Sydney. Moreover, its recent US acquisition All Aboard America looks like it will be transformational.

“All Aboard had 40% EBITDA growth in the six months to June 23, which provides a great starting point for Kelsian. The acquisition also gives Kelsian a great platform for further growth in the US. This future growth potential will also be boosted by the steps it has made in introducing electric vehicles into its fleets, which should help maintain its competitive advantage and contract economics.

“Kelsian is trading on 12 times FY25 earnings, with a fully franked dividend yield of 5%. We think that, when you include the increased US earnings for next year, it looks very cheap for the defensive and low risk earnings growth on offer,” Whittaker says.

Integral Diagnostics (ASX:IDX)

Integral’s stock price crashed by a stunning 30% late in November, after revealing to the market that clinical staff shortages, particularly in regional areas, and cost inflation, have continued into FY24.

The company said it’s responding to these pressures by accelerating productivity and efficiency initiatives.

Its Australian Q1 revenue growth however was 8.4% higher on pcp, and in New Zealand, IDX achieved a 4.1% NZD increase in revenue vs pcp.

IDX is the fourth largest diagnostic imaging company in the country operating in an industry very familiar to private equity.
Australian Clinical Labs (ASX:ACL)

“Meanwhile,” Marc adds, “the 3rd largest pathology player in the country is ACL, dominating in an industry where scale and volume is everything.

“With a largely fixed cost base across the sector, additional volume brings significant operating leverage.”

Cooper Energy (ASX:COE)

“Our preferred local gas producer. We previously owned Senex Energy (ASX:SXY), which was taken out by Posco, and believe Cooper also could hold strategic value for a larger E&P company.”

And finally, a quick nod to Ridley Corporation (ASX:RIC) – this is stock feed and animal ingredient preoducer which has been attracting attentrion with the growing global demand for biofuels.

Marc adds that RIC’s impressive tallow output could hold strategic value to a refiner.


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