The 4 common traits of small-cap takeovers (and our top 8 targets for 2025)

A key them to watch in 2025 is M&A.

Whenever I discover an undervalued stock idea for the Seneca Australian Small Companies Fund and share it with Luke Laretive, his first question is almost always "What's the catalyst?"

Finding shares that are trading below intrinsic value is just one part of the battle. Finding a catalyst is the critical, next key step. Takeovers are one such potential catalyst.

Picking takeover targets is certainly not the sole reason to hold an investment thesis. Chasing deals can be fraught with danger given the uncertainties involving different companies and prevailing business conditions. However, a takeover can be one of a number of catalysts that we are seeking to identify for undervalued growth companies.

With recent takeovers in our funds, from tugboat operator MMA Offshore (ASX: MRM) - discussed here - to undervalued lithium brine operator Arcadium Lithium (ASX: LTM) - discussed here - in this wire we discuss the key characteristics that make an attractive takeover target, and 8 key picks in our small caps fund set to benefit.

Fund managers often whinge about portfolio holdings getting bought out - as 'it is hard to find a replacement business to own of such high quality'. In our view, this is just admitting that you're not great at your job, as you don't have a sustainable, repeatable process for identifying new opportunities. Or perhaps it's just a humble brag disguised as a whinge. You're telling me that a ~30% upfront premium plus the ability to reinvest the proceeds into a new opportunity is not a win for your investors?!

Market conditions ripe for M&A

Market conditions usually trump talent and after a flurry of recent small-cap transactions, we think market conditions are conducive to more M&A activity in 2025. Why?

Higher USD = more cross-border M&A

With a Trump-inspired spike in the USD (relative to the AUD), offshore earners - think miners like BHP (ASX: BHP), where the commodity is priced in USD, and US-dominant companies like CSL (ASX: CSL) - become relatively more attractive for investors (and acquirers).

Additionally, the weaker AUD enhances the appeal of Australian assets to international buyers, as acquisitions become more attractive in relative USD terms. A recent example is SelfWealth (ASX: SWF), which received a takeover bid at a 90% premium from an offshore acquirer.

Lower Rates on the Horizon?

Corporations are growing increasingly confident in the economic outlook, which makes justifying M&A decisions to boards much easier.

With market sentiment leaning toward the possibility that we’ve seen off the final rate hike—and some economists forecasting upcoming rate cuts—this shift has a critical impact. Lower rates reduce the cost of capital, making it more favourable for acquirers to move forward with M&A deals. This dynamic could further fuel activity in the space. 

Favourable Legal Backdrop

M&A activity in Australia is expected to surge ahead of new merger law reforms set to take effect in 2026. Companies are likely to fast-track deals in 2025 to avoid stricter regulations, including mandatory public notifications for acquisitions above a certain threshold, which could complicate hostile takeovers. The new rules are also expected to increase the complexity and duration of regulatory reviews, adding urgency to dealmaking.

Undervalued small caps attract higher takeover premiums

It has been well-documented that Australian large caps have outperformed small caps over the last few years. This has created an attractive hunting ground for undervalued small-cap opportunities.

Consequently, Australian small caps have seen an average takeover premium of 63% (median 54%) based on our analysis. This stacks up very favourably relative to global M&A premium averages of 25-30%.

Resources deals tend to be dominated by trade players, who can extract the most synergies through shared infrastructure at nearby assets, and the application of specialist mining expertise. Private equity players prefer software and industrial companies whose growth can be supercharged through financial leverage.

How to find takeover targets on the ASX

We value the same things as corporate development teams at major local and global companies - our process is naturally driven by our industry experience. We believe the most likely takeover targets share these four key traits:

1. SYNERGIES: the target is worth more to the acquirer than on its own (1+1 = 3)

Synergies in acquisitions can take many forms, such as economies of scale, cost efficiencies, and/or operational enhancements. Targets that provide cost or revenue synergies—such as shared infrastructure, reduced overheads, or expanded market access—are especially attractive in fragmented industries like mining services or healthcare.

Cost synergies arise from eliminating redundancies, sharing platforms, or leveraging combined infrastructure, while revenue synergies may come from cross-selling opportunities or market expansion. Financial synergies often stem from improved capital structures or lower costs of capital, as seen when major miners like Rio Tinto (ASX: RIO) acquire juniors, leveraging their stronger balance sheets and access to debt or equity markets. Similarly, private equity firms can deploy capital more efficiently in cash-hungry businesses, like store rollouts, when compared to smaller, single-brand operators.

Additionally, strategic acquirers often have a higher risk tolerance for assets in ramp-up phases or those facing operational challenges, favouring a long-term perspective. Expertise in optimizing performance and attracting top talent further enhances the operational value, making such acquisitions compelling for buyers with the resources and vision to maximize returns.

2. SCARCITY: difficult to replicate/replace assets

Scarce, hard-to-replicate assets—such as unique resource deposits, intellectual property, or established networks—make companies attractive takeover targets. Predictable revenue streams and undervalued assets further enhance appeal, offering stability and growth potential while de-risking investments.

The preference for "buy over build" across industries highlights the value of acquiring proven assets over riskier, capital-intensive greenfield projects, positioning companies with strategic, high-quality assets as prime candidates for acquisition.

3. GETTABLE: open and/or conducive to selling shareholder register

Analysing the shareholder register is a vital part of our investment process, as the concentration and composition of key holders can significantly influence a stock's trading dynamics. These factors affect liquidity, create potential overhangs (e.g., large sellers poised to exit), contribute to crowding risks, or unlock strategic opportunities for acquirers.

A fragmented and diverse shareholder register typically makes a company more conducive to a takeover by reducing the likelihood of a single blocking stake. Conversely, a highly concentrated register may complicate the process, as securing the support of major shareholders becomes essential for the deal to proceed.

In Australian takeovers, a scheme of arrangement—a common method for executing acquisitions—requires at least 75% of votes cast (by value of shares voted) to support the transaction. This high threshold ensures strong shareholder backing, but it also means a dissenting 20% stake can effectively block the deal unless pre-bid agreements or negotiations secure their support in advance.

4. CHEAP: undervalued by public market investors relative to intrinsic value

It may seem obvious, but a target must be sufficiently undervalued for an acquirer to justify paying a premium while still achieving an attractive return on capital. The reasons for undervaluation can vary, but certain characteristics tend to provide acquirers with confidence in a strong "margin of safety," including:

• Recurring, predictable, or defensive revenue – offering stability and reducing risk.
• Countercyclical opportunities – targets that are out of favour with the market, allowing acquirers to capitalize on undervaluation during downturns.
• Optionality – assets or growth opportunities that are undervalued or overlooked, effectively providing "something for nothing."

Our 8 top takeover targets stock picks

At Seneca, we pride ourselves on transparency and 'walking the walk'. So we thought we should time stamp some predictions and hold our analysis accountable, noting that predicting exact timelines can be highly uncertain.

And if nothing else, we own these stocks because we think they are cheap considering the growth prospects, so of course we think they make attractive targets for acquirers

De Grey Mining (ASX: DEG)

$1.50 share price, $3b market cap

NOTE: I began writing this a couple of weeks ago. We hold DEG in the Seneca Australian Shares SMA and Seneca Australian Small Companies Fund.  We still believe the analysis remains relevant, despite today's takeover bid at ~$2.08, so I’ve left it in. We think competing bid(s) may emerge within the next few weeks for DEG.

De Grey Mining is a gold developer with its flagship asset, the Hemi Gold Project, in the Pilbara region of Western Australia. Hemi represents one of the few significant gold discoveries in Australia over the last decade, with large-scale production potential in a tier-1 jurisdiction. De Grey’s unique position in the Pilbara—a mining region known for its rich infrastructure—supports its low-cost, long-life production profile, a scarce quality in today’s gold market. With promising project economics and major catalysts on the horizon, we believe De Grey is positioned for substantial upside, including the potential for a takeover.

Synergies:

De Grey’s Hemi Gold Project offers globally significant scale and the potential for low-cost production, making it an ideal fit for major gold miners looking to expand their low-cost production base.

A well-capitalized acquirer could achieve financial synergies by leveraging lower capital costs. Broker valuations would be significantly higher using discount rates in line with major producers compared to the ~10% rate attributed to De Grey.

A major gold miner with a proven track record of navigating the challenging and often costly ramp-up phase would bring valuable expertise to the Hemi project, especially given the financial constraints typically faced by undercapitalized junior miners. This expertise is particularly critical for processing Hemi's refractory orebody, which requires a Pressure Oxidation (POX) plant—an area where experienced operators like Barrick Gold (NYSE: GOLD) have demonstrated success.

With sufficient financial backing, the Hemi project could exceed the 550koz per annum production rate outlined in De Grey’s DFS, scaling rapidly to 700koz by FY30 through the integration of regional deposits and a 'hub and spoke' model. In the hands of a well-capitalized major, production could expand further to 1Moz per annum, supported by ongoing exploration and scoping studies that enhance long-term optionality and flexibility to adapt to the prevailing gold price environment.

Scarcity:

Hemi stands out as the best, undeveloped gold project in Australia, offering large-scale, long-life production potential in a tier-1 jurisdiction. Assets of this calibre are becoming increasingly rare in the global gold market, which enhances the strategic importance and acquisition appeal of De Grey.

Unlike other Pilbara projects, Hemi has unique scale and consistency, setting it apart as a geological rarity in an otherwise iron ore-dominated region.

Gettable:

De Grey has a relatively open shareholder register, making the company accessible for acquisition. However, the key challenge lies in Gold Road Resources (ASX: GOR), which holds a 17.3% stake in De Grey. Any acquisition deal will likely require securing GOR’s pre-approval, and an acquirer may consider a broader strategic agreement involving GOR to facilitate a transaction.

Cheap:

We estimate DEG is worth $2.50 at the current gold price of ~A$4,000/oz, with upside to $3.00 under a takeover scenario, and factoring in some optionality.

De Grey's definitive feasibility study assumed a considerably lower gold price of A$2,700/oz, well below the spot price, and the company continues to achieve exploration success.

De Grey’s shares currently trade at a discount compared to other ASX-listed gold producers, offering significant upside potential.

Who might buy it?

In a robust gold price environment, cash-rich major miners are actively seeking opportunities to secure high-quality, long-life assets in stable jurisdictions, as demonstrated by recent large-scale transactions. Examples include Gold Fields' acquisition of Osisko Mining in Canada for A$2.38 billion and AngloGold's acquisition of Centamin in Egypt for A$3.85 billion. De Grey’s Hemi Gold Project aligns perfectly with this strategic focus, offering scale, longevity, and a tier-1 location.

Agnico Eagle has been rumoured as a potential buyer, actively targeting Australian assets. While Northern Star could be a natural owner, supported by a net cash balance of ~A$400 million, it may face limitations due to existing commitments. Other potential suitors to watch include Newmont (ASX: NEM), Evolution Mining (ASX: EVN) and Gold Fields (JSE: GFI).

Why now / what's the catalyst?

Federal environmental approval is widely regarded as a critical catalyst for De Grey’s stock performance. In the market's view, international corporates, such as Agnico Eagle, may perceive federal approval as a major hurdle, particularly in light of the controversial (Regis ASX: RRL) McPhillamys decision. However, the lack of a site visit by federal authorities, deemed unnecessary, signals a smoother pathway for approval.

Recent permitting updates indicate no significant risks or red flags, with no Section 10 lodgement and A$150 million in NAIF (Australian government) funding secured in August—a positive endorsement of the project’s viability. Given the economic benefits of a major gold project in the Pilbara, any political interference or rejection would be highly unlikely, in our view. Federal approval is now anticipated in the December quarter.

With key milestones such as finalising financing, final investment decision, and construction on the horizon, the next 6-12 months will be pivotal for De Grey.

As a clue to timing - and this is merely speculation - we've seen recent broker activity that could indicate there could be 'fee-generative' action (read: M&A mandate) sooner rather than later. Euroz Hartleys has re-initiated coverage on De Grey following its recent equity raise, a move that appears unrelated to seeking capital raise fees. JP Morgan has also initiated coverage on both De Grey and Gold Road, reinforcing the view that the company is in play for strategic interest.

Pointsbet Holdings (ASX: PBH)

PointsBet (PBH) is a sports and racing bookmaker operating primarily in Australia and Canada. Following the A$333 million sale of its US business to Fanatics, the company has transitioned to profitability, with its Australian operations contributing the majority of revenue (~$2 billion in turnover, growing 10% annually) and its Canadian business expanding rapidly at 50% year-on-year growth. PointsBet reported its first positive quarterly operating cash flow in FY24 and is projected to achieve EBITDA of +$31.3 million by FY26, highlighting its strong operational leverage.

Lingering market mispricing from its prior US expansion and exclusion from the ASX300 has created a compelling entry point. As profitability becomes more evident in FY25, or through a potential acquisition at a premium, PBH is poised for a significant re-rating.

Synergies:

The sports betting industry thrives on scale—once a scalable offering is in place, success depends on building a customer base through strategic marketing investments. This emphasis on scale has driven significant industry consolidation over the years, with notable deals such as Centrebet and IASBet takeovers, BetR merging with BlueBet (ASX: BBT), and William Hill combining with CrownBet to create BetEasy. We believe PointsBet, with its rising ~5% market share, is positioned as a likely takeover target in this environment.

The ongoing crackdown on gambling advertisements in Australia has created a regulatory moat around existing customer bases, making established operators more valuable. PBH’s growing market share further enhances its appeal to potential acquirers, as it represents a scalable and increasingly competitive asset.

Upstart player BetR, backed by industry veteran Matt Tripp, exemplifies the active consolidation trend. BetR previously made an unsuccessful bid for PointsBet’s Australian business in 2022 at a $220 million valuation. More recently, it merged with BlueBet, projecting $14 million in synergies. As the industry shifts its focus toward profitability, achieving scale remains the most sustainable path forward, and PBH stands out as an attractive target in this context.

Scarcity:

PointsBet’s proprietary technology stack, including its scalable, cloud-based wagering platform and innovative 'Odds Factory,' is a key differentiator in the market.

Having spoken to ex-employees of Pointsbet, our research suggests Pointsbet's proprietary technology stack is far superior to peers, led by CTO Daniel Lucas (ex-Flutter). Pointsbet's original and unique offering in the market was its 'points betting' model where customers can wager on variable points spreads markets, as opposed to basic 'head-to-head' markets.

In this industry, technology equals product, and legacy players like Tabcorp Holdings (ASX: TAH) have lost market share precisely due to outdated technology and lacklustre product innovation, highlighting the value of PointsBet’s superior platform.

The increasing regulatory scrutiny and difficulty in securing gambling licenses in Australia amplify the value of incumbent license holders like PointsBet.

Gettable:

PointsBet (PBH) has an open register, with management holding a meaningful stake to ensure alignment with shareholders, but not so much as to create a blocking position.

I recently attended PointsBet’s AGM in Melbourne as the sole shareholder present in person, where I had the opportunity to speak directly with management. During the meeting, CEO Sam Swanell was granted 1.73 million ordinary shares (in lieu of a cash bonus) and 1.65 million performance rights, so it's safe to say that management is on the same page as minority shareholders.

Cheap:

We believe PBH is worth between $1.40 and $1.50 per share in a change-of-control transaction.

Despite the recent share price rally, PBH’s enterprise value remains just $308 million, implying an FY26e EV/EBITDA multiple of 8.7x. This represents a 31% discount to Sportsbet owner Flutter Entertainment (LON: FLTR) on 16.5x. Furthermore, our analysis indicates that PBH trades at a ~30% discount relative to comparable peer transactions, underscoring its potential undervaluation.

Who might buy it?

We note that Stake.com (the big $1 billion US gaming entity led by Ed Craven, not to be confused with the discount stockbroking platform by the same name) established a 5% substantial shareholding in Pointsbet on 3 June 2024, through its parent company Easygo gaming. This comes after Stake.com initially acquirer a 4.2% foothold in PBH in December 2023 and has increased its take over the last 12 months via on-market purchases.

Founded in 2017, Stake.com has grown into one of the world’s largest online casinos, offering sports betting, virtual table games, and online slot machines. Despite being headquartered in Melbourne, Australians cannot legally access Stake.com's games due to the use of cryptocurrency for betting. However, Stake.com has been rumoured to be exploring an entry into the Australian market, reportedly seeking a wagering license through the Northern Territory Racing Commission. Earlier this year, founders Ed Craven and Bijan Tehrani registered the name "Stake Gaming" with ASIC and partnered with Ras Technology Holdings (ASX: RTH) for sports and racing data.

Given the sector's strict regulatory oversight, we believe it would be quicker and more efficient for Stake.com to acquire PointsBet, leveraging its existing license and customer base to establish an Australian presence. Similarly, Laurence Escalante’s Virtual Gaming World, which has rapidly dominated the US online casino market, is reportedly exploring acquisitions as US growth slows—making PBH a logical target.

Additionally, TAB’s wagering division, owned by Tabcorp (ASX: TAH), continues to struggle with outdated technology. This creates an incentive for TAH to consider acquiring PBH to modernize its offering and regain lost market share, further highlighting PBH’s strategic value in a consolidating market.

Why now / what's the catalyst?

The Australian recently reported that PointsBet was the subject of "a takeover bid worth more than $300 million from an overseas suitor" (source). While PointsBet promptly denied the speculation, stating, "the Company confirms that it is not in discussions as suggested in the Article," we view the response as a carefully worded dodge. In our experience, there’s rarely smoke without fire, and the rumour aligns with the growing interest in PointsBet as a valuable acquisition target.

PointsBet is becoming increasingly expensive for potential acquirers as its valuation re-rates, creating urgency for interested buyers to act.

PointsBet's profitability is inflecting, a development that often drives re-ratings in gaming stocks. US peers like DraftKings (NYSE: DKNG) and Rush Street Interactive (NASDAQ: RSI) have shown how achieving sustainable profitability can significantly enhance valuations.

Ongoing updates in the regulatory environment are expected to provide bidders with greater confidence in valuing PointsBet as a target.

Sun Silver (ASX: SS1)

Sun Silver listed on the ASX in May 2024 on the back of acquiring the Maverick Springs silver project in Nevada, USA. Regular readers will recall that Seneca participated in the IPO, outlining our thesis to the Livewire community here. SS1 has been the standout IPO on the ASX in 2024, delivering the strongest day-one performance of the year and maintaining its momentum post-listing.

SS1 remains a top pick in the sector.

Synergies:

Precious metals prices have been buoyant during 2024 (gold +27% YTD, silver +31 YTD), leaving cashed-up producers looking to grow production acquisitively, taking advantage of financial synergies (cost of capital), ramp up expertise, and central processing capabilities.

In the last 3 months, Coeur Mining (NYSE: CDE) acquired SilverCrest Metals (NYSE: SILV) for A$2.7 billion, while First Majestic Silver (NYSE: AG) acquired Gatos Silver (NYSE: GATO) for A$1.5 billion, strengthening their silver production capabilities with high-grade assets in Mexico.

Sun Silver's project is uniquely situated near the Carlin trend in Nevada, USA, a top mining jurisdiction globally, surrounded by existing large silver/gold mine operators with mill infrastructure.

Barrick Gold (NYSE: GOLD) and Kinross Gold Corp (NYSE: KGC), with market capitalizations of A$47.3 billion and A$18.7 billion, respectively, operate projects near Sun Silver’s Maverick Springs. With both companies facing depleting reserves and rising production costs, Maverick Springs offers a strategic opportunity to enhance scale, extend mine life, and reduce costs through operational synergies.

Scarcity:

In August 2024, Sun Silver published an updated resource over Maverick Springs, reporting an unconstrained 196Mt @ 67g/t AgEq for 423Moz (40g/t Au for 253Moz & 0.32g/t Au for 2Moz). This is the largest pre-production primary silver deposit on the ASX.

In gold equivalent terms, the project hosts approximately 5.16 million ounces at 0.82g/t, representing a scarce and valuable resource, particularly in the context of the resource-rich but increasingly constrained Western Australian goldfields or Pilbara region.

Gettable:

Sun Silver is tightly held, with management strategically choosing to IPO at a lower valuation to retain greater ownership and control of the company. With 42 million shares held by management and insiders, along with 3.5 million shares held by project vendors, there is strong alignment among key stakeholders. This structure suggests a focus on long-term value creation over short-term incentives like board fees, making management more likely to entertain a compelling acquisition offer that aligns with shareholder interests.

Cheap:

Updating our chart, from our previous wire on silver companies, we continue to see Sun Silver as undervalued at a fully diluted market cap of $102 million (at $0.70/sh). Since listing, SS1 has gone from strength-to-strength, delivering extensional drill hits, and upgrading its resource by 45% to 423Moz AgEq.

Critically, the other junior explorers that screen as undervalued based on their resources either lack scale, or lack a clear development pathway in an attractive jurisdiction.

Who might buy it?

Nearby players such as Kinross and Coeur Mining trade on A$3.5/in-ground ounce of silver equivalent (gold + silver), compared to SS1's A$0.36 for the same metric. Of course, it's more nuanced than that, given that these miners have assets in production (and low-cost production specifically), but the key takeaway is that a regional player could acquire Sun Silver for a substantial premium and still make it an accretive deal. 

Couer Mining has experience making low grade silver projects in the area work. Couer's Rochester deposit operates with a head grade of 12g/t silver, which is over 3x lower silver grade than Sun Silver's Maverick Springs deposit (which also has a gold credit). Sun Silver geologist Robert Marr has also spent working on the Carlin trend for Newmont and Couer.

Kinross' nearby Bald Mountain mine, located just 25 km away as the crow flies, operates at a head grade of 0.5 g/t gold and achieves low costs through heap leach processing, with an AISC of approximately $900. Maverick Springs shares similar geological characteristics, offering the potential for equally efficient operations at a significantly higher grade.

Why now / what's the catalyst?

Sun Silver is entering a critical 12-24 month de-risking period as it works to update its resource, advance extensional drilling, and complete metallurgy studies. These steps are pivotal to unlocking the project's full potential and proving the viability of a predominantly underground mining operation. With silver prices remaining high, the timing is ideal to capitalize on exploration and development milestones.

SS1 continues to demonstrate strong exploration upside beyond its current resource, which the market has yet to fully price in. The company is advancing a 7,500m drill program, targeting high-grade zones in the northwest section of the property. Recent results include a 220m step-out hole returning 50m @ 70g/t AgEq from 248m (including 3m @ 423g/t AgEq). These intersections highlight the potential for significant resource growth.

Additionally, SS1 recently increased its landholding at Maverick Springs by 34%, further boosting exploration optionality. This expanded footprint offers the potential for new discoveries and additional scale.

Monash IVF (ASX: MVF)

Monash IVF Group Limited is a leading provider of assisted reproductive services in Australia and Malaysia. With over 50 years of experience, the company has been instrumental in pioneering fertility treatments, including achieving Australia's first IVF birth and the world's first pregnancy from a frozen embryo.

After a flurry of corporate activity in the sector, MVF is the sole remaining listed fertility services provider.

Synergies:

Monash IVF presents significant synergies for buyers in a fragmented and consolidating fertility healthcare industry. Operational efficiencies can be unlocked by streamlining administrative functions, laboratory operations, and marketing, as well as optimizing supply chains through bulk purchasing.

Revenue synergies include cross-selling complementary healthcare services, such as obstetrics and diagnostic imaging, and expanding fertility offerings to include advanced genetic testing, egg-freezing, and donor services.

Additionally, Monash IVF’s established presence in Australia and Southeast Asia provides a strong platform for geographic expansion into high-growth markets in Asia, the Middle East, and Europe, capitalizing on the increasing demand for assisted reproductive services.

Scarcity:

Monash IVF stands out as a “buy over build” opportunity in a highly regulated industry with significant barriers to entry. Recruiting high-quality clinicians is a major challenge in the services sector, making established players like MVF difficult to replicate. The company benefits from a defensive revenue profile, driven by predictable, high-margin income streams and a supportive regulatory environment.

Key regulatory tailwinds include Medicare rebates for fertility treatments such as IVF, which help reduce costs for patients, and the inclusion of Pre-Implantation Genetic Testing (PGT) since 2021. This allows patients to select chromosomally healthy embryos, increasing the likelihood of successful pregnancies. These factors position MVF as a highly attractive asset in a growing market with strong incumbency advantages.

Gettable:

MVF has an open register with a substantial free float of 91.7%, comprising a diverse mix of institutional funds and passive ETFs, ensuring broad shareholder representation with no blocking stakes.

Cheap:

MVF trades at just 8.3x EV/EBITDA, a 31% discount to the 12x multiple paid for its closest competitor, Virtus Health (ASX: VRT), which was acquired by private equity firm CapVest after a bidding war with BGH Capital in 2022.

While there are no direct Australian-listed peers for comparison, Swedish peer Vitrolife AB trades at 23x EV/EBITDA—over double MVF’s valuation. Additionally, recent deals for unlisted IVF players like Genea and Adora have been struck at multiples between 12-15x EV/EBITDA.

At its current 9x multiple, MVF offers 30-50% upside potential alongside a 4.4% fully franked dividend yield, providing an attractive mix of value and income for investors.

Who might buy it?

Private equity has been highly active in the fertility sector. BGH Capital, which acquired rival Virtus Health, may see Monash IVF as a logical consolidation opportunity. Other potential acquirers include KKR, leveraging its global healthcare expertise to scale Monash IVF, and Crescent Capital Partners, which could integrate the company with its existing Australian healthcare investments. Additionally, interest from unlisted players in the sector cannot be ruled out.

Why now / what's the catalyst?

The recent class action settlement, while disappointing to the market, has effectively cleared the decks for Monash IVF, eliminating a key overhang and making the company a more attractive takeover target. With this issue resolved, MVF appears increasingly vulnerable as a 'sitting duck' for potential acquirers.

The potential for falling interest rates in 2025 would provide private equity firms with greater firepower to pursue acquisitions, enhancing the likelihood of a move on MVF.

Wildcat Resources (ASX: WC8)

Pilbara WA lithium 'super hub' - Wildcat (WC8) / Mineral Resources (MIN) / Pilbara Minerals (PLS)

We mentioned Western Australian lithium developer WC8 here... It's a logical bolt-on for Pilbara Minerals (ASX: PLS), or in a consolidation of broader lithium hub in the Pilbara region, in our view.

Synergies:

Pilbara Minerals has already successfully integrated ore sorting technology, which could enhance the efficiency of nearby assets like Wodgina, Mt Marion, and Bald Hill. Shared infrastructure, including haul roads, camps, worker transport, and power/water access, would further reduce costs, while consolidating management overheads would streamline operations.

Lithium superhub in the Pilbara region

A further bold prediction, and this is more speculative, is that PLS could look to tie up Mineral Resources (ASX: MIN)'s lithium assets if MIN was willing to divest this part of the business. Chris Ellison may want to cash out given recent publicity, and most of the value in MinRes (ex-mining services) is in Onslow iron now anyway. PLS would get the nearby Wodgina asset (50% stake), Mt Marion and Bald Hill, all of which might be improved using PLS's recently deployed ore sorting technology.

Additionally, PLS would get its hands on various stakes in lithium juniors, most notably 18.9% stake in Wildcat Resources which it could use a blocking stake and foothold that they could action later when the cycle turns. This could position a merged PLS/MIN to dominate global spodumene supply with a ~20% share of the global lithium market, which unlike lithium brine, can be flexed up and down more quickly to adapt to prevailing market pricing.

Scarcity:

Wildcat's Tabba Tabba is a unique asset, with its tabular orebody amenable to low cost mining, and attractive position in the heart of the logistics-rich Pilbara. Wildcat's granted mining lease at Tabba Tabba is a significant intangible asset, enabling earlier production.

After releasing its maiden mineral estimate of 74.1Mt @ 1.0% Li2O, Tabba Tabba represents Australia’s largest undeveloped publicly reported hard-rock spodumene resource (after Azure was acquired).

Gettable:

The key to a deal, as we have mentioned previously, is Mineral Resources' 18.8% shareholding in Wildcat, which could prove to be a blocking stake. However, we think a win-win deal can be struck here, given MIN's overriding preference for retaining mining services contracts at mines.

Additionally, in light of recent developments, we think Chris Ellison, MIN’s CEO, is likely to prioritize managing reputational risk and shoring up balance sheet flexibility, especially amidst uncertainty surrounding the timing of a lithium price recovery.

Notably, Chris Ellison has previously suggested the possibility of spinning off Mineral Resources’ lithium division into a standalone entity in the past. A larger, patient miner with consolidated assets could deliver these projects more effectively than smaller, cash-constrained developers, maximizing value and positioning the Pilbara as a dominant force in the global lithium supply chain.

The recent appointment of James Dornan as WC8’s General Manager of Project Development adds further intrigue, given his instrumental role in advancing Azure Minerals’ Andover Lithium Project to a ~$1.7 billion sale.

Cheap:

We think Wildcat is worth 50-60 cents per share based on its resource, a ~2-4Mtpa mining operation using a floatation plant, and favourable logistics.

Tabba Tabba still has exploration upside and room to grow this resource towards 100Mt, at which point it may be worth closer to Azure's A$1.7 billion price tag than the current WC8 market cap of $310 million.

Who might buy it?

Listening to Pilbara Minerals CEO Dale Henderson on the Global Lithium podcast (21 November 2024), his comments on the Latin Resources (ASX: LRS) acquisition stood out:

"Here was a fantastic asset, brought to life by a great team. The project timing was perfect—they had developed and identified a decent-sized resource in a great jurisdiction, quickly approaching those next steps of detailed design and execution. That’s a fantastic entry point for Pilbara to step in, support their thinking, and transfer our learnings from Pilgangoora to this asset. And I have to stress—this was all at the right time."

Sound familiar? Wildcat Resources, anyone? The parallels are hard to ignore.

We've previously flagged PLS's refinanced/expanded debt facility, giving it to dry powder to pursue further growth, propensity to buy countercyclically (Altura, Latin), but what popped up on our radar most recently is a prominent investment bank's research restriction on PLS (unrelated to the Latin deal and debt refinancing, as far as we could tell).

While Pilbara makes plenty of sense, the Pilbara lithium 'superhub' is not worth discounting in our view. Hard rock lithium, while higher cost of production than brines, has one key advantage - its ability to more quickly flex supply and up and down to meet prevailing market demand. Hard rock mining is also simpler, less exposed to the elements, and more well understood by the market.

A brine cartel is already starting to form (Orocobre merging into Allkem, merging into Livent, bought by RIO - alongside Albermarle, SQM and Zijin in that region). If a Pilbara lithium cartel formed, it would be significant in the global supply context, at ~20% of supply.

OPEC, for reference, controls ~37% of global oil supply.

We think a PLS/MIN/WC8 lithium tie-up is well within the realm of possibility. Hancock (Gina Rinehart) and SQM are the other two players that could get involved in this, given their jointly owned Andover project in the Pilbara, 200km away from Tabba Tabba. SQM also the 50/50 JV at Mt Holland with Wesfarmers (ASX: WES), who we understand is looking for more lithium, not less. A dark horse in this scenario is Rio Tinto, who recognizes the profit potential of large-scale mining operations in the Pilbara and has demonstrated interest in lithium through its involvement with Arcadium.

Why now / what's the catalyst?

Wildcat's maiden resource estimate (MRE) announcement of 74.1Mt @ 1.0% Li2O provides tangible data on the project's scale, allowing potential acquirers to better assess its value. Vesting upon the release of Wildcat's MRE, GAM as the project vendor will receive 62 million shares in Wildcat. GAM, a natural and historic seller of WC8 shares (GAM itself was put up for sale recently with dwindling assets), could sell its new WC8 shares to a strategic looking to make a play.

We think the lithium market is troughing, with recent supply coming of the market via Arcadium (Mt Cattlin), Core Lithium ASX: CXO (Finniss), MinRes (Bald Hill), Pilbara Minerals (Pilgan plant), and curtailments elsewhere in the market at Liontown ASX: LTR (Kathleen Valley), MinRes (Mt Marion underground), and Global Lithium ASX: GL1 (Manna). This should help balance the supply/demand in the market sets lithium up to perform well in the medium/long term.

RPMGlobal (ASX: RUL)

RPMGlobal offers a comprehensive enterprise platform with 30 integrated products covering the entire mining lifecycle, from design and planning to equipment management, ESG, and financial optimization, making it a "one-stop shop" for the industry. Its flagship AMT equipment management software, which accounts for 36% of ARR, dominates the market, servicing 9 of the top 10 global mining companies and major blue-chip clients like BHP, South32, Mineral Resources, and Pilbara Minerals. Additionally, RPMGlobal extends its reach by catering to mining services providers like Worley and OEMs, with ~70% of major equipment companies such as Hitachi relying on AMT.

We bought RUL shares at the inception of the Seneca Australian Small Companies Fund with an average price around $2.00. We thought it was highly likely that RUL will get taken over at some stage. We still think that's the case, despite the share price rally.

Synergies:

Acquiring RPMGlobal offers buyers in complementary industries—such as mining equipment, ERP, or geospatial technology—the opportunity to integrate its comprehensive solutions into their platforms. This not only enhances their product offerings but also creates significant cross-selling opportunities for mining-specific tools like scheduling, simulation, and maintenance optimization software, leveraging existing customer networks for expanded reach and revenue growth.

The acquisition could also unlock cost savings through streamlined operations. By optimizing R&D efforts, buyers can eliminate duplication and leverage RPMGlobal’s expertise in mining software. Shared infrastructure, such as data centres and cloud services, could reduce costs further, while aligning sales and marketing teams would enable more effective promotion of a unified product suite and deeper market penetration.

In addition to operational efficiencies, there are strong revenue synergies. Buyers can cross-sell RPMGlobal’s products into their existing customer bases, and vertical integration opportunities—such as bundling mining equipment or ERP systems with RPMGlobal’s software—would enhance customer value while creating long-term competitive advantages.

Scarcity:

RPMGlobal has spent over a decade building and acquiring a comprehensive suite of mining software products, establishing a market-leading position that would be nearly impossible to replicate from scratch. Its extensive network of major mining customers—including industry giants like BHP, Rio Tinto, Mineral Resources, Newmont, and Anglo American—provides a significant competitive moat. The company’s transition from upfront software licenses to a recurring subscription-based revenue model further enhances its attractiveness, delivering predictable and defensive cash flows.

Now entering the cash flow harvesting phase, RPMGlobal presents an appealing opportunity for financial investors seeking stability and scalability. The recurring nature of its revenue, coupled with its entrenched relationships across the global mining industry, positions RUL as a scarce and highly valuable asset in the mining technology space.

Gettable:

CEO Richard Matthews has consistently stated that RPMGlobal has been "built to sell," with a preference for a strategic buyer willing to pay a premium for synergies and exclusivity. Matthews, who owns ~3% of the company (~6.735 million shares valued at ~$21 million), is aligned with shareholders in securing a strong price in any deal. With extensive experience in M&A, Matthews has successfully sold ~50 businesses, including Mincom for A$315m in 2007 (delivering a 52% CAGR over three years) and eServGlobal’s US division for A$113.4m in 2010, far exceeding the company’s market cap and generating a 97% return in one year. Matthews’ track record and clear alignment make RPMGlobal well-positioned for a high-value sale to a strategic acquirer.

Cheap:

We analysed 23 comparable software transactions, which have traded at an average EV/EBITDA multiple of 27.9x. On a like-for-like basis, RUL trades at ~21x, reflecting a 25% discount to peers due to its conservative accounting practice of expensing R&D costs, unlike most peers that capitalize these expenses.

Focusing on the most comparable transactions in the mining software space, Sandvik acquired Deswik, a mine planning software provider, at an estimated EV/EBITDA multiple of 28-32x. Similarly, mine modelling software company Micromine was nearly acquired by AspenTech in 2022 for $900m, equating to an estimated 30x EV/EBITDA, aligning with broader industry benchmarks.

With growth supported by recently signed global framework agreements with major miners—enabling streamlined product rollouts across multiple sites—and the mining sector's strong performance, RUL is positioned to attract significant interest from corporate acquirers. Additionally, as growth and operating leverage become increasingly evident over the next 2-3 years, we believe RUL’s valuation premium could rise.

In the event of a takeover, we estimate ~40% upside potential for the stock.

Who might buy it?

RPMGlobal is most likely to attract interest from strategic buyers willing to pay a premium for synergies, exclusivity, and cost-saving opportunities. Logical candidates include large software vendors like SAP and Aspentech, which could integrate RPMGlobal into their distribution networks. Mining equipment manufacturers such as Caterpillar, Komatsu, and Hitachi, which have already white-labelled RPMGlobal’s simulation software, could benefit from exclusivity and enhanced integration through an acquisition.

Mining-focused technology companies like Epiroc or ASX-listed Imdex (ASX: IMD) may also find RUL appealing, leveraging its strong recurring revenue base (~80%) and potential for revenue synergies. Orica (ASX: ORI), a leader in mining explosives, is another potential buyer, given its recent acquisitions in mine technology and demonstrated interest in expanding its digital footprint. Lastly, private equity or other strategic investors could see RPMGlobal as a platform for further consolidation in the mining tech space.

Why now / what's the catalyst?

We believe the mining sector is set to experience an upswing, creating favourable conditions for RPMGlobal (RUL). The company is also at a profitability inflection point, with impressive incremental profit margins of 47% in FY24—a figure that continues to improve, further highlighting its strong operational leverage and growth potential.

Red Hill Minerals (ASX: RHI)

Although deeply under the radar, RHI owns one of the highest quality assets on the ASX, a 0.75% royalty over Mineral Resources' Onslow iron ore project in the West Pilbara, WA.

Despite MinRes getting all the wrong kind of attention in the press lately, one thing that has remained constant is its steadfast ability to deliver the Onslow iron project on-time, and on-budget. The company reaffirmed its guidance for the mining ramp-up at Onslow, targeting a 35Mtpa run rate by June 2025.

On our estimates, the royalty should deliver ~A$30 million per annum in EBITDA at 35mtpa Onslow production.

Synergies:

A dedicated royalty company inherently operates with a lower cost of capital compared to RHI, which, at its core, remains a small exploration-focused entity.

While explorers often face discount rates of 10% or higher, brokers typically value Deterra Royalties (ASX: DRR) using a 7% WACC on an NPV basis. This difference results in a theoretical ~42% uplift in the value that Deterra can achieve by holding the asset. Importantly, the uplift is ~42% rather than 30% because the relationship between discount rates and asset valuation is non-linear. As the discount rate decreases, the compounding effect of lower discounting over time magnifies the value difference between companies with varying costs of capital.

Given the royalty's growth profile, strong counterparty credit rating, and RHI's under-geared, net cash balance sheet, we believe a larger, dedicated royalty player with a significantly lower cost of capital is highly likely to acquire RHI’s royalty, unlocking its full value potential.

Scarcity:

Mining royalties are a highly sought-after asset class, particularly those that are cash-flowing and offer a clear growth pathway to increased production—without incurring additional costs for the royalty holder.

High-quality royalty deals are hard to come by - just ask Deterra Royalties, who has recently closed its first deal, despite looking for the last 4 years! RHI's royalty boasts similar standout attributes, including a tier-1 project, low-cost production, a strong counterparty, and significant growth optionality, making it a compelling and scarce asset in this competitive market.

This asset didn’t appear out of nowhere—it’s the result of over a decade of exploration efforts by RHI. The company discovered and delineated the deposit before vending the project tenements to MIN in July 2021. MIN then took over to bring the project into production, building on the groundwork laid by RHI.

In the context of the growing demand for royalty assets, particularly those with minimal incremental cost and clear growth trajectories, RHI’s Onslow royalty could easily attract suitors or be sold if the company chose to divest.

Gettable:

This is the big question mark for RHI. Management and insiders own 68% of the company, and any transaction will ultimately hinge on management's willingness to deal.

Cheap:

RHI currently trades at a market cap of $260 million, or an EV of $195 million when adjusted for $65 million in cash (after paying out a 30 cents per share fully franked dividend this month). Management is strongly aligned with shareholders, owning 68% of the company, and has a track record of returning excess capital as fully franked dividends.

We think the royalty could be bought for over $6.00 per share using conservative iron ore price assumptions (well below spot price), with an additional upside of $1.00-$2.00 from residual value (iron ore tenements, exploration projects, cash). Worst case, you get a 10% fully franked dividend yield while you wait, with 'free' exploration upside in the interim.

Who might buy it?

Deterra Royalties (DRR), a $2 billion market cap dedicated royalty company, derives most of its value from a 1.232% royalty over BHP's Mining Area C iron ore deposit in the Pilbara. This tier-1 asset produces approximately ~125Mtpa of iron ore annually at low cost, supported by excellent infrastructure in one of the world's best mining jurisdictions. Sound familiar? RHI’s royalty has strikingly similar attributes.

Deterra is actively pursuing M&A opportunities to justify its dedicated M&A team and $11 million in annual corporate costs. With board and management incentivized to execute deals, Deterra has publicly targeted acquisitions in the A$100-300 million range, focusing on bulk commodities and battery metals.

Putting its money where its mouth is, Deterra recently made an A$273 million all-cash offer for the UK-listed Trident Royalties PLC (LON: TRR), a 35% premium to the Trident share price. And what better deal to do than a low-risk bolt-on adjacent to their existing WA iron ore royalty? The RHI royalty is a low-risk, bolt-on opportunity perfectly aligned with Deterra’s existing WA iron ore royalty.

If not Deterra, other specialist royalty companies would be taking a long look, including Labrador Iron Ore Royalty Corporation (TSE: LIF), as well as general royalty behemoths Franco-Nevada Corp (NYSE: FNV) and Wheaton Precious Metals Corp (NYSE: WPM), as well the counterparty itself MinRes (if it can sort out its balance sheet issues in the meantime).

In either scenario, we see a clear pathway to $6.00 per share in value for RHI's royalty.

Why now / what's the catalyst?

With the ramp-up at Onslow underway, RHI's value proposition will likely become undeniable to the market within the next six months. This creates a prime opportunity to secure a win-win deal for shareholders. Additionally, a stronger iron ore price environment could further highlight the attractiveness of RHI's royalty, drawing increased investor attention to the sector.

Unlocking Value: Lessons from Iluka (ASX: ILU) - RHI could follow a similar value-realization path to Iluka in 2019. At the time, Iluka held a lucrative iron ore royalty embedded within its broader corporate structure. Activist shareholders recognized the untapped value and pushed for a demerger, resulting in the creation of Deterra Royalties. The spinout delivered a +22% return for Iluka shareholders during a period when the market fell -7%, resulting in a 30% outperformance. Similarly, RHI could unlock significant shareholder value by spinning off its royalty into a standalone vehicle or monetizing it through a strategic sale, aligning with proven precedents in the industry.

Catapult Group International Ltd (ASX: CAT)

Catapult Group International is a global leader in sports technology and analytics, specializing in wearable devices and video solutions that monitor and analyze athlete performance. Its wearable GPS trackers, famously visible on players across sports like AFL, soccer, and rugby, provide critical data on metrics such as load management and fatigue, while its video solutions offer tactical insights for coaches and teams. By converting traditional intuition-based coaching into a data-driven approach, Catapult has become a must-have tool for professional sports organizations worldwide.

Catapult is poised for significant growth, supported by strong tailwinds in the professional sports industry. The global sports tech market is projected to grow at 17.5% CAGR to $40 billion by 2026, driven by increasing media rights values, the rise of sports betting, and growing fan engagement through social media and streaming platforms. With only ~21% penetration of an addressable market of ~20,000 elite teams, Catapult has ample runway to expand its user base and cross-sell products. Emerging trends such as the professionalization of college sports, rising investment in women’s sports, and integrated video-wearable solutions further amplify its growth prospects, positioning Catapult as a key beneficiary in the fast-evolving sports landscape.

We mentioned CAT as a buy to our Good Research subscribers when the stock was trading at $1.96 just 3 months ago. With shares now trading +88% higher today, and +53% since we wrote this article on Livewire, the thesis is still largely unchanged.

Synergies:

We see Catapult as a global sports tech platform that can be scaled up significantly into a large addressable market. Data is the new oil, and Catapult holds the key to professional athlete performance data.

Acquiring Catapult unlocks synergies through product integration and cross-selling. Catapult’s wearable technology and analytics tools can be combined with an acquirer’s platforms to create comprehensive solutions, while its global client base provides opportunities to cross-sell and expand into sports media, ticketing, or fan engagement markets. Integrating Catapult’s player data into broader ecosystems can enhance customer experiences and generate new revenue streams.

The acquisition offers cost efficiencies through streamlined operations and supply chain optimization, while a larger acquirer could scale up Catapult’s R&D budget to accelerate growth through new product development. Catapult’s data can also drive advanced AI tools for injury prevention, performance forecasting, and tactical insights. With a strong presence in elite sports and opportunities in grassroots markets, the deal positions the acquirer as a leader in sports analytics, strengthening their competitive edge and growth potential.

Scarcity:

Opportunities to gain exposure to the rapidly growing professional sports industry are exceedingly rare, particularly in public markets and even more so in Australia. In the US, assets in this sector are scarce and often held by private equity or billionaires as trophy investments. Catapult stands out with a strong, hard-to-replicate market position, underpinned by proprietary technology in wearable athlete trackers and video solutions for coaches.

Over the past decade, Catapult has built and acquired a comprehensive suite of software and wearables, establishing a robust network of professional organizations that would be difficult to replicate from scratch. Now entering a cashflow harvesting phase, CAT presents an attractive opportunity for financial investors seeking exposure to the professional sports sector.

Gettable:

CAT has an open register, with the board holding approximately 17% ownership. This substantial stake reflects strong alignment with minority shareholders and suggests that any potential takeover would likely require board approval, ensuring shareholder interests are well-represented.

Cheap:

CAT is currently trading at 4.9x EV/Sales, with a robust ~20% annual top-line growth and impressive 75% incremental profit margins. The business also offers significant growth optionality, with new products like the NCAA sideline video tools yet to be reflected in sell-side analyst models. Additionally, the potential to secure a major deal with the NFL represents a substantial blue-sky opportunity.

Given the valuation benchmarks for software companies, we believe any acquisition would likely occur at a multiple of at least 6-8x EV/Sales. Factoring in a reasonable takeover premium, this could propel CAT’s valuation to over $5.00 per share.

Who might buy it?

Private equity firms, such as Silver Lake (City Football Group, New York Knicks), CVC (rugby leagues, Formula One), and TPG (tech/media interests), are likely contenders, drawn by CAT’s market-leading wearable technology, recurring revenue streams, and opportunities for operational efficiency and bolt-on acquisitions. With CAT under-geared and trading on just 5x EV/Sales, private equity buyers could leverage its strong market position to scale growth and enhance profitability.

Global technology giants like Apple, Google, or Microsoft might also see strategic value in Catapult’s player-tracking and analytics capabilities. Integrating this technology into their health, fitness, or AI ecosystems could enhance their platforms and deepen their reach into professional sports. Similarly, sportswear and equipment manufacturers like Nike, Adidas, or Under Armour could embed Catapult’s solutions into their wearable products, offering athletes and teams a complete performance ecosystem.

Additionally, media and entertainment companies such as ESPN, DAZN, or Fanatics could utilize Catapult’s analytics to enrich broadcasts and fan engagement platforms. Whether through data-driven insights for viewers or enhanced performance metrics for athletes, Catapult represents a scarce, high-value asset in the growing sports technology landscape, making it attractive to a wide range of strategic and financial buyers.

Why now / what's the catalyst?

CAT's profitability is inflecting, and it's entering an attractive cash flow harvesting phase, demonstrating strong operating leverage in its recent financial performance.

The key metric to call out from CATs recent 1H25 result was its exceptional incremental profit margins. The company achieved an impressive 75% incremental margin in the first half of FY25, well above its medium-term target of 30%. This reflects strong profitability from newly signed teams and product sales. Notably, this performance builds on incremental margins of 43% in FY24, a significant improvement from 19% in the first half of that year, underscoring CAT's growing operational efficiency and ability to capitalize on revenue growth.

A key catalyst for CAT is its looming inclusion in the ASX200 index. With its market cap now at $1.0 billion, CAT is nearing the ~$1.2 billion threshold for inclusion in this premier index, tracked by passive ETFs and institutional mandates. Such an event could drive significant upside, as seen with other high-performing ASX-listed technology shares like Pro Medicus (ASX: PME) and Wisetech (ASX: WTC), which have re-rated to P/E multiples of 204x and 97x, respectively. These stocks benefited from strong capital flows and their scarcity as tightly held, high-quality tech shares on the ASX, particularly following the exit of Altium after its takeover (~50x EV/EBITDA).

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By no means is this an exhaustive list of companies with catalysts and where corporate activity could unlock further value, but it gives you a flavour of one of the types of catalysts we're looking for.

I know this is a lot of content to digest, and you might be wondering why we’re so willing to share our insights and intellectual property. The truth is, these individual pieces hold limited value on their own—it’s our disciplined, repeatable process that transforms isolated, high-quality ideas into a continuously updating, diversified portfolio designed to deliver superior returns to client portfolios.

For access to our best intellectual property, Seneca actively manages and holds the companies discussed within the Seneca Australian Small Companies Fund, available exclusively to wholesale investors. Feel free to reach out to Luke Laretive or the team to discuss investing. 

For self-directed traders/investors or brokers looking for ideas, we outline our thesis for 2 of these kinds of ideas each and every month over at Good Research.