CRITERION: It’s a small cap smorgasboard with takeover targets on the table
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The takeover action evident at the top end of town is trickling down to the small and mid cap sectors, as mainly foreign marauders avail of the undervalued morsels on offer.
In theory, the end of cheap money should have crimped takeover activity – and perhaps it’s too early to tell. But many of the targets are so small they could be bought with coins from the petty cash till.
At the mid-cap level, Tassie salmon producer Tassal Group (ASX:TGR) has attracted the attention of Canadian mob Cooke which lobbed a $4.95 a share indicative offer (a circa 20 per cent premium).
Given listed rival Huon Aquaculture was acquired by JBS Aquaculture last year, we should have seen this one coming … in glorious hindsight of course.
A provider of software for the automotive industry, Infomedia (ASX:IFM) has fielded no fewer than three takeover approaches from offshore parties.
Telehealth play ResApp (ASX:RAP) attracted a 11.5 cents share offer from global drug maker Pfizer, which then raised the offer to 20.7 cents conditional on positive trial results for ResApp’s “cough into the app” detection tool for respiratory diseases.
The data wasn’t too flash, but a compromise offer of 14.6 cents is still on the table.
Taking the reverse mind games approach, Canada’s Dye & Durham offered $5.50 a share for registry and property settlement group Link Administration (ASX:LNK), only to revise it to $4.30 a share and then tweak it to $4.70 a share.
We’re yet to see whether that cunning plan works.
On an ecclesiastical note – and praise be! – the US focused Pushpay Holdings (ASX:PPH) is mulling an offer from shareholders BGH Capital and Sixth Sense.
Pushpay facilitates church donations, which in the US are on a grander scale than a felt bowl passed down the pew.
Other small caps fielding offers include analytical testing house HRL Holdings (ASX:HRL), from the much bigger ALS (ASX:ALS) and payroll services provider PayGroup (ASX:PYG). Woolworths is tilting at online commerce house MyDeal (ASX:MYD).
The common feature of these takeovers is that they don’t actually have much in common.
That makes the next takeover target hard to pick; not that punters refrain from trying.
Monash IVF is supposedly a no-brainer given its peer Virtus Health – the world’s first IVF outfit to publicly list – is being subsumed by private equity.
In the case of Lark, shares in the Tassie whisky maker have lost almost half their value since February, when CEO Geoff Bainbridge was forced to quit after a well-aired incident involving a meth pipe and an elaborate cover-up yarn.
Lark reports it has two million litres of the fiery water in its barrels with a future sale value of $422 million – twice the company’s market capitalisation albeit not recognised in its accounts.
For those who get it right – or guess it right – small cap takeovers can yield relatively rich rewards.
According to Ausbil, 26 microcap takeovers lobbed between October 2020 and April 2022 were at an average premium of 54 per cent. Think childcare and fund administrator Mainstream Group, which attracted premia of circa 150 per cent.
In contrast, the eight large cap takeovers in this period elicited an average 28 per cent premium.
Despite the potential quick riches on offer, it’s inadvisable to buy a stock on takeover potential alone.
If a cash offer does materialise, it could confer all the upside to an acquirer buying on the cheap.
With air travel booming, for instance, holders of the now privatised Sydney Airport holders well may be experiencing seller’s regret.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.