Asyst Technologies, Inc. (fka ASYTQ)

[trader53]

Takeover Wave Sweeps Up Small-Caps

Reverse Merger of Asyst Technologies
(ASYTQ) & Crossing Automation

>> The Deal <<

http://www.scouler.com/index.php/scouler-co-feature-article-in-the-deal/

“We have two successful cases that are in the final stages of completion that I would like to discuss,” the firm’s namesake founder says. “In the first [Bender Shipbuilding & Repair Co.], Scouler was named financial adviser to the [official committee of unsecured creditors] and later the liquidating trustee. The second is Asyst Technologies Inc., where Scouler initially representedthe secured lenders but is also now serving as the liquidating trustee. In both cases, the companies filed without a game plan to get to the exit, and it was only through the combined efforts of all the professionals involved that [the debtors] achieved a better than expected result.”


Takeover Wave Sweeps Up Small-Caps


While economists and pundits debate prospects of a slowing economy, a possible peak in corporate earnings growth or Washington’s chances of resolving a ballooning budget deficit, deal activity continues at a near record pace. Unlike prior periods, where mega-deals made headlines, the current wave of corporate buyouts is targeting small- to mid-size companies.

Through the first half of this year, there have been $1.5 trillion of deals globally, up 22% from the same period in 2010, and $573 billion of U.S. deals, up 38% from last year, according to Dealogic. Last year, some 70% of the transactions were less than $5 billion, so smaller companies are increasingly becoming acquisition targets.

Despite the recent stock market decline, attributable to concerns about weakening global economic conditions, and worries over a potential U.S. government debt default, an accommodative Federal Reserve has kept borrowing costs low. Corporate loans are now available to do deals and the cozy lending environment should create continued competition for takeover targets.

While June marked the end of the Fed’s “Quantitative Easing,” I would expect an extended period of accommodative monetary policy and low interest rates, a tailwind for higher stock prices. The huge cash hoards in the coffers of U.S. corporations gives credence to my belief that we are on the cusp of a multiyear wave in merger and acquisition activity. According to Bloomberg, the 1,000 biggest corporations have $3 trillion in cash on their balance sheets and are seeking opportunities to boost growth and establish strategic advantages. In this environment, distressed assets and strong franchises are both attractive.

As bottom up, research driven investors, we at Teton Advisors employ many of the same metrics in the valuation of our portfolio candidates as criteria used by strategic corporate buyers and private equity outfits. The recession highlighted fundamental weaknesses in business models, prompting some small-cap company executives to seek an exit strategy. The near increased cost cutting of late 2008 and 2009 also lowered the risk profile of many acquisition targets. Moreover, the financial crisis’ severity awakened larger firms to the need to fill product line gaps or to acquire strategic assets.


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While top down macroeconomics is a factor in our investment process, we at Teton place far greater emphasis on specific company valuations irrespective of near term economic trends. Our bottom up, research driven investment process seeks to uncover the mispriced equities of attractive companies selling at a discount to their intrinsic value. Consequently, our portfolios stand to benefit from this renewed acquisition activity.

I believe the valuation inefficiencies in the equities of small-cap companies are partially attributable to the consolidation of the financial services industry and the cutback in brokerage research budgets. Investors stand the best chance of participating in this renewed merger and acquisition cycle by investing in small-cap mutual funds run by investment managers with a value approach.

During the June quarter, four companies in our GW Small Cap Equity Fund announced they were being acquired at significant premiums to our cost: Lawson Software (LWSN) was acquired by GGC Software Holding; Varian Semiconductor Associates (VSEA) was acquired by Applied Materials (AMAT); Advanced Analogic Technologies (AATI) was acquired by Skyworks Solutions (SWKS); Gerber Scientific (GRB) was acquired by Vector Capital.

This compares with four announced takeouts from our portfolio holdings in the first quarter; last year 14 of our portfolio companies were acquired by either strategic or financial buyers. In our GAMCO Westwood Mighty Mites Fund (WEMMX), year-to-date through June, there were nine announced acquisitions, following a total of 18 announced deals in 2010.

http://www.scouler.com/index.php/scouler-co-feature-article-in-the-deal/

http://blogs.forbes.com/investor/2011/08/02/takeover-wave-sweeps-up-small-caps/?partner=yahootix