Following the proposed takeover of Andor Technology by Oxford Instruments, SVG Investment Managers said M&A in small cap technology was definitely back in vogue, pointing also to the Autodesk bid for Declam in recent weeks.
SVG added that the bid for Andor highlighted the value available in quoted specialist electronic firms right now.
Steiner and Stuart Widdowson of SVG and co-managers of the Strategic Equity Capital investment trust called Andor a “unique asset”, boasting a market-leading position and strong management team.
They said: “We believe its sales and margins are at a low point in the cycle, but prospects are likely to improve through 2014 as new products gain traction and markets recover through late 2014 and 2015.”
Harry Nimmo, manager of the Standard Life Investments’ UK Smaller Companies Trust, with nearly £1bn in assets, is also understood to have recently sold out of Oxford Instruments altogether while his smaller company funds hold 12% in Andor, although he was unwilling to discuss the circumstances around the bid.
Nimmo continues to have faith in businesses where online retailing is a driver of sales, saying this bucked the assumption that smaller companies were predominantly UK-biased.
He cited Asos as an example, which began life with a UK focus, and now derived two-thirds of its revenue from overseas, through its online model.
Asos has been a long-held top stock in Standard Life UK Smaller Companies, currently comprising 5.9% of his portfolio.
But Nimmo said this was less of a trend than it was 10-20 years ago. He said as many smaller companies were internet-based, online trading enabled a more global reach.
Ted Baker Group was another example of a holding where internet projects were building its brand outside the UK.
Nimmo said: “I have been a big fan of internet enablement, and since 2004 it has been a big feature of my portfolio. I think the rise of 3G technology is not over, and the increased use of tablets will see this continue. The winners and losers will be quite clear. In online gaming, for example, the winners will be Paddy Power and Bet365, the loser will be Ladbrokes. In online retailing the winner will Asos, the loser, M&S.”
Meanwhile Rob Harley, senior research analyst at Bestinvest, said he was seeing better value now in larger companies, believing the strong run small caps have enjoyed for over a decade might be coming to an end.
He also expressed concern over capacity as the most popular funds were flooded with assets and said he was now looking to the next generation, lauding Fidelity’s Alex Wright and Franklin Templeton’s small cap team as ones to watch.
