Why this small-cap healthcare stock could be a takeover target

Eiger Capital’s Stephen Wood outlines where we are in the small-cap cycle, as well as one healthcare stock on his radar.

The below was produced by Livewire Markets and published on 22 June 2023.

Investing in companies that later become takeover targets is a particularly lucrative strategy. Think OZ Minerals (ASX: OZL), which saw its share price soar on the back of an offer from BHP (ASX: BHP). Or Liontown Resources (ASX: LTR), which recently skyrocketed nearly 70% after an offer from Albemarle (NYSE: ALB)

However, having the foresight to identify such companies is far from easy. 

According to PWC, there were 1,699 deals locally in 2022 (down from 2,118 in 2021). Of these deals where values were publicly disclosed, almost $120 billion changed hands (down from around $300 billion in 2021).

That said, Pitcher Partners recently found that 56% of dealmakers believe M&A could rebound in 2023 (after values and deal volumes fell in 2022 by 52% and 5% respectively). 

And while there are a variety of headwinds facing markets – including higher inflation, higher rates, and weakening economic activity – Eiger Capital’s Stephen Wood believes we are far closer to a rebound in small caps than many would think.

In this environment, Wood believes defensive businesses are likely ripe for takeover activity. And there’s one heavily sold-off healthcare stock, in particular, that has caught his attention. 

In this interview, Wood also outlines where he believes we are in the small-cap cycle after years of underperformance, as well as how investors can identify quality companies in this environment. 

Note: This interview was recorded on Thursday 25th May 2023.