THE REAL ECONOMIST: MERGER AND LENDING ACTIVITY FAVORING SMALLER CAPS IN 2010

Wednesday, March 3, 2010

MERGER AND LENDING ACTIVITY FAVORING SMALLER CAPS IN 2010

Astoria, New York
Many small companies with good balance sheets and loss carryforwards in the Small Cap and Micro Cap World are in the driver's seat for 2010. With mergers and takeover activity starting to pick up coupled with better lending for the smaller companies, we have the potential for these tiny companies to outperform their larger counterparts. The capital gains rate, steady in 2010, is expected to rise by percentage points in 2011. Also tax rates for corporation is expected to go higher as government budgets need to find ways to solve their credit crunches. Thus, there is a rush to look for bargain small companies that can offer increased sales and loss carryforwards for the larger companies. Mergers among small companies could take place for various reasons too. Cost constraints, need to consolidate to save money and diversification to stay alive could be reasons for the micro caps to decide on a merger or a privatization. One of the interesting takeovers was Sirit ( SI.TO ) of Canada by Federal Signal. Sirit is a Rfid company that uses its technology for highway and bridges tolls. The initial takeover price was 30 cents Canadian currency but yesterday the offer was finalized at 46 cents, a whopping 53 plus percent premium. It signals the markets that many small and micro caps are undervalued and after thorough due diligence, it can lead to unleash higher values on these tiny companies. Also, lending towards smaller companies with good balance sheets and good stories has been favorable. " With less money out there to lend, it probably is better for the investment lenders to spread it out on a few favorable smaller companies than on a single larger cap. You are simply diversifying the risk and could be reaping on much higher rewards" finalized FPG.
Posted by FPG at www.MicroCapStock.blogspot.com 1:47 AM

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THE REAL ECONOMIST

Wednesday, March 3, 2010

MERGER AND LENDING ACTIVITY FAVORING SMALLER CAPS IN 2010

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