With a risingeconomy comes rising expectations. CEOs at
mid-sized and large companies need to find new paths to growth to
justify -- or boost -- their company's stock price. That's no mean
feat in an
still in slow-growth mode. As a result, expect to hear about plenty
more deal-making in 2011 as smaller companies get acquired to help
jumpstart the top line.
To be sure, acquiring companies don't want to buy a company many
years from generating its own action. Instead, they want companies
that have already done a lot of heavy lifting, developing new
products and the marketing plans to support them.
I've identified four small companies that are truly ripe for a
deal. Investors should take a close look at these firms...
1. Savient Pharma (Nasdaq:
This company has been practically begging "buy me." After receiving
Food and Drug Administration approval for a new and
highly-effective drug for the treatment of gout, the company
declared it had no intention of remaining solo. Speculation that a
major pharmaceutical company such as
Bristol-Myers Squibb (NYSE:
would snap up Savient pushed its stock up north of $20 last
September. When the company admitted it couldn't find a
taker,shares plunged and are now below $10.
Since then, Savient has decided to build a sales force and will
start to generate its own sales until a buyer emerges. Sales began
in the fourth quarter of 2010 and are expected to hit $10 million
per quarter by the third quarter of 2011. Just this week, Savient
received a significant endorsement when the Department of Veterans
Affairs signed up for a five-year purchase agreement. (It is
estimated that one in seven gout sufferers is a U.S. veteran.)
The VA deal may be thecatalyst that brings potential suitors back
to the table. Savient could secure $40 million in revenue this year
and perhaps double that in 2012. Analysts at Global Hunter
Securities predict annual sales may eventually top $500 million.
Those are the kinds of numbers that get the attention of Big
Pharma. With or without abuyout , this stock looks quite
would simply help the stock to arrive at its destination much
2. Biolase Technologies (Nasdaq:
I profiled this company
two months ago
have risen 175% since then. That may not be the end of it. Shares
may surge yet higher if takeover rumors are to be believed.
Biolase has developed a range of dental lasers that lead to better
patient outcomes along with less pain for the patient. It took many
years for the company to gain traction with dentists, and Biolase
ate through a lot of shareholder money. But sales are finally set
to take off and the money-losing days appear to be winding down.
Sales are on track to grow from $26 million last year to more than
$60 million this year, and could hit $90 million in 2012, according
to analysts at Needham & Co.
On the one hand, a buyout would be logical for a large dental
distributor such as
. Its sales have ceased growing -- they will be hard-pressed to
increase more than 2% to 3% in 2011. Biolase's surging sales base
is still too small to really move the needle, but it would give
Dentsply's sales reps another reason to call on dentists. And since
Biolase is on its way to becoming nicely profitable (
should rise 150% to $0.35 by next year, according to Needham), then
the deal could quickly become accretive for Dentsply.
A buyout would bring complications. Biolase is also targeting other
markets outside of dentistry such as dermatology and ophthalmology.
So Dentsply -- or any other suitor -- might need to figure out how
to profitability divest those emerging products. This $4.50 stock
could easily see $7 or $8 in a buyout.
3. BSD Medical (Nasdaq:
This is a company with a very good product in search of actual
customers. BSD's systems are used to treat certain tumors with heat
(hyperthermia), while increasing the effectiveness of other
therapies such as radiation therapy. The clinical data in support
of BSD's devices have been quite strong. Trouble is, these devices
are fairly expensive, and besides, BSD lacks an effective internal
sales force to peddle such machines.
That's where major medical device firms come in. Companies like
are always in search of hot new products to hand off to their sales
force. I discussed Medtronic's
last summer. Nothing has changed since then. Sales are expected to
grow less than 1% in thefiscal year that ends next month. Rivals
Boston Scientific (NYSE:
face a similar conundrum. BSD Medical could probably be had for
around $200 million (50% above the current price). That price would
bring minimal current revenue, but the promise of more significant
long-term sales. As is the case noted with Savient above, though,
BSD may need to show real sales traction before any potential
suitors get serious.
4. Biodel (Nasdaq:
Takeover chatter continues to swirl around this maker of an
injectable insulin device that acts more quickly than existing
devices. When the FDA pushed back and told Biodel in late October
that it needed to conduct more tests, investors dumped shares,
which have been stuck around $2 ever since. More clinical tests
means more spending and likely more dilutive capital-raising later
in 2011. Although Biodel was rumored to be in play for $15 to $20 a
share a few years ago, management would likely be happy to take $6
or even $8 for the stock these days. Still, that would be a pretty
hefty gain from the current share price.
Action to Take -->
I'd be surprised if more than one of these names were acquired in
2011. That's just the nature of buyout rumors -- many are called,
but few are chosen. Both Savient and Biolase look quite appealing
even if a buyout never occurs. For BSD Medical and Biodel, the
long-term picture would still be promising on a "go-it-alone"
basis, but management will likely need to sell more stock in the
next year or so to keep the well from running dry.
-- David Sterman
P.S. -- I don't know if you're aware of this or not, but a
20-year energy agreement between the United States and Russia is
about to expire. The problem is, this deal supplies 10% of
America's electricity. When the Russians refuse to renew the
agreement, the U.S. will face an entirely new kind of energy
crisis. This disruption could send a handful of energy stocks
through the roof. Keep reading…
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.