Smaller Companies Step Up M&A Ambitions Amidst Market Optimism

The improving M&A landscape is emboldening smaller companies to pursue larger acquisitions. American Axle & Manufacturing Holdings, with a market capitalization of $636 million, recently announced a $1.4 billion cash and stock acquisition of UK-based Dowlais Group Plc. Last week, Italian lender Banca Monte dei Paschi di Siena SpA launched an all-stock takeover bid for Mediobanca SpA, a larger rival valued at €13.3 billion.

This increased activity among small firms is partly driven by a desire to cut costs and remain competitive. Tony White, partner at merger arbitrage specialist MKP Advisors, states, "Smaller companies are adopting a 'double or quits' strategy, acquiring larger targets to maintain relevance in global industries or face acquisition themselves."

Companies are also pursuing size-based consolidations to attract investor attention and cater to customers' preference for dealing with fewer, larger suppliers. Some acquirers are leveraging stock price rallies to enhance their buying power. Monte Paschi shares have surged 90% in the past year, boosting its acquisition currency.

Filippo Modulo, partner at Italian law firm Chiomenti, highlights the shift in priorities towards industry rationale in dealmaking. While opposition persists for deals lacking strategic alignment or national security concerns, Modulo observes, "Smaller companies are becoming bolder in exploring alliances, JVs, and takeovers."

Notable examples include Castor Maritime Inc., a bulk shipping firm, acquiring a majority stake in German asset manager MPC Capital for €183 million, seven times its own market value. Oliver Scharping, portfolio manager at Berenberg, notes, "If you're a smaller firm that has been sidelined from deals for years, this might be your moment to shine."