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(Bloomberg) -- The improving environment for deals is encouraging some smaller firms to start hunting much larger prey.
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Automotive supplier American Axle & Manufacturing Holdings Inc., which has a market value of $636 million, on Wednesday unveiled a $1.4 billion cash and stock acquisition of UK peer Dowlais Group Plc. American Axle structured the deal to include just enough cash so that its shareholders will own 51% of the combined entity.
Last week, Italian lender Banca Monte dei Paschi di Siena SpA launched an all-stock takeover bid for larger rival Mediobanca SpA. Monte Paschi currently has a market value of about €7.8 billion ($8.2 billion), well below the €13.3 billion value of its Mediobanca bid.
Sentiment in M&A circles has been strong since US President Donald Trump’s reelection, as expectations of good stock market performance and a wave of deregulation encourage bankers to dust off pitchbooks for the dream deals of yesteryear. Smaller firms are also getting in on the action as they look for ways to cut costs and stay competitive, said Tony White, a partner at merger arbitrage specialist MKP Advisors.
“Boards and management teams see the need to be bolder,” White said. “For many smaller companies, it is a ‘double or quits’ strategy of buy big to stay relevant in global industries, or be acquired.”
Bulking Up
Companies are also pursuing deals in order to reach a certain size to attract investor attention, according to White. This consolidation is often welcomed by customers that want to deal with fewer but larger suppliers, he said.
Some would-be acquirers are benefitting from rallies in their stock prices, which gives them an acquisition currency to do bigger deals. Monte Paschi shares have gained about 90% over the past year, while Mediobanca is up closer to 30%.
Over in Japan, Taiyo Holdings Co. is considering teaming up with private equity firm Japan Industrial Partners Inc. on a deal for larger peer DIC Corp., in a move that would consolidate two major chemical companies, Bloomberg News reported earlier this month.
QXO Inc., the $5.5 billion acquisition vehicle set up by serial dealmaker Brad Jacobs, has also been hunting bigger targets. It’s pursuing a hostile bid for Beacon Roofing Supply Inc. that values the building products company at $11 billion including debt.