As small-cap stocks head into their strongest season, November through January, two small-cap portfolio managers say to expect increased merger and acquisition activity and cash flow within this sector.
Two Delaware Investments small cap portfolio managers – Chris Beck, senior vice president and chief investment officer for the small-cap value/mid-cap value equity team at Delaware Investments, and Frank Morris, senior VP and chief investment officer for core equity investments at Delaware Investments – discussed the small-cap sector of the market and what they anticipate going forward at a press lunch on Wednesday in New York.
As of Sept. 30, the Delaware Small Cap Value Fund achieved a top 10% ranking and Small Cap Core Fund achieved a top 19% ranking in their respective categories year to date.
Morris noted the considerable merger and acquisition activity in the past year in the small-cap space, especially within his core fund. Over the last 19 months, Delaware’s Small Cap Core Fund has held more than 10 companies that either merged or were acquired.
“There’s plenty of capital out there, either from corporations who are flush with cash in their balance sheets or private equity firms that do mergers and acquisitions,” he explained.
Going into the recession, M&A activity stalled, but Morris expects it will “pick up throughout the rest of this year and over the next several years.”
Delaware Investments accredits a continued increase in M&A activity to favorable credit markets, limited organic growth opportunities, an improved economic climate and strong balance sheets.
“We’re now at that stage when you look at capacity utilization where it becomes advantageous now to buy somebody else’s equipment and property and plant,” he added.
While Beck, however, hasn’t seen as much M&A activity within his small-cap value funds, he also expects an increase in future mergers and acquisitions.