Shareholders of small companies rewarded through takeovers

When we talked to Peter Leeds back in December (see the article here), he mentioned a few ways that companies would use their cash in 2014. One way: focus on mergers and acquisitions of smaller companies. Larger companies buying out smaller companies is something happening more and more as the perception of the economy turns upward/remains positive. Let's look at a quote from our Leeds article:

Penny stocks typically will be ripe for being acquired or taken over; even if the takeover is just to get employees or intellectual property. If it is a synergistic fit, you will see large and medium-sized companies scooping up these penny stock companies.

In a majority of the cases, these takeovers reward shareholders in a large way.

According to an article on Barron's, in 2013, the Teton Westwood Mighty Mites Fund (WMMCX), a small fund focusing on companies with market capitalizations of $500 million or less, reported 20 takeovers, and seven so far in 2014. As far as Bowser recommendations go, there were five recommendations that were takeover targets in 2013. Since 1976, 226 of the total 610 Bowser recommendations have been bought out in some form (privatized, acquired, merged, etc.).* There have also been a handful of Bowser recommendations acquired so far in 2014, including Innotrac Corp (INOC) and Camco Financial Corp (CAFI).

With regards to making money off of takeovers, 161 (71%) of the 226 Bowser companies were bought out at a higher price than the price at the time we recommended them. Those acquired in 2013 posted the following gains:†

  • Smithfield Foods: +22,567%
  • Aerosonic: +195%
  • Theragenics: +68%
  • AutoInfo: -36%
  • Veramark: -57%

All time, there have been some considerable winners stemming from take overs. The top three Bowser recommendations taken over:

  1.  Smithfield Foods: +22,567%
  2. Inamed Corp: +4,490%
  3. Continental Can: +2,860%

While we cannot guarantee that our picks are/will become takeover targets, we do pick fundamentally sound companies with value/good upside potential. Fortunately, larger companies looking to grow through acquisitions and/or mergers are looking for the same qualities in takeover targets.

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*Figures taken from the 2014 Historical Review, which covers recommendations up through February 2014.
†Gain determined using the price at the time of recommendation and the takeover price.