Shareholder Activism and Microcap Stocks: Finding the Next Servotronics
Triple-digit takeover premiums don't happen often, but SVT is far from the only microcap activist success story out there.

Last month, just before TransDigm’s (NYSE:TDG) offer to buy Servotronics (NYSE:SVT) at a 274% premium was made public, I researched SVT as a possible investment opportunity. At the time, I didn’t expect much upside for SVT stock.
After looking into the ongoing proxy contest and the company’s financials, I concluded there wasn’t much potential for gains—so much so that I almost wrote an article titled “Servotronics Has Little Upside, Stay Away,” which would have come out just before the takeover news.
Many value investors missed out on this situation, possibly for the same reasons I did. One activist’s “SAVE Servotronics” plan, involving a sale-leaseback of its properties and lean manufacturing changes, didn’t seem likely to turn things around, especially compared to similar efforts at other small manufacturers like Blonder Tongue Laboratories (NYSE:BDRL).
Another activist shareholder may have also successfully pressured SVT’s board to “explore strategic alternatives,” but from the outside, Servotronic’s in its “as-is” state didn’t seem a business that even a strategic buyer would be willing to bid top dollar for.
Now, with SVT’s stock near $50 per share—up from less than $10—it’s clear that missing the picture on small, overlooked “deep value” stocks can prove regretful. While we can’t count on another offer like this, there are still some small companies that could have significant upside, especially if shareholder activism comes into play.
Servotronics Buyout: High Takeover Premiums Not Rare Among Microcaps
It’s not everyday that we see a microcap or nanocap stock be the recipient of a takeover offer representing a high premium over the stock’s recent trading price. However, while not common, it’s not exactly rare, either.
So far this year, we have seen similar such situations play out, two of them occurring just in the past month alone:
Back in January, healthcare services company Accolade (ACCD) agreed to be acquired by Transcarent for $7.03 per share, or at a 109% premium to the stock pre-offer trading price. This transaction closed in April.
Last month, SigmaTron International (NASDAQ:SGMA) accepted Transom Capital’s offer to take the company private at $3.02 per share, representing a 134% premium of SGMA’s closing price just prior to the takeover announcement.
On May 29, healthcare billing software company Streamline Health (NASDAQ:STRM) announced that it had agreed to be acquired by MDaudit for $5.34 per share, or at a 138% premium to the stock’s prior day closing price.
Yet while there are many such cases of tiny public companies getting taken out at big premiums, it’s not as if one can buy every undervalued or seemingly-undervalued name out there, and hope for an eventual offer.
Plenty of investing gurus will tell you to not buy stocks on a possible takeover catalyst alone. That said, there is a way to whittle down a list of undervalued stocks, to focus on the names best-positioned to end up getting acquired. Namely, by focusing on stocks with shareholder activist activity.
5 Microcap/Nanocap Stocks With Activists at the Gates
Shareholder activism has exploded in recent decades, but doesn’t always result in major positive changes for investors along for the ride. In some cases, activist campaigns fail to make headway. In other cases, companies play ball with activists, agreeing to pursue “strategic alternatives” and other avenues to unlock value, yet these efforts prove to be fruitless.
This proxy season, a few recent shareholder activist campaigns stand out as possibly paving the way for such a favorable outcome:
AstroNova (NASDAQ:ALOT): 9.1% shareholder Askeladden Capital Management has launched a proxy fight for control of the specialty printer company’s board, nominating 6 new directors for election at this year’s annual shareholder meeting, scheduled for July 9.
Civeo (NYSE:CVEO): Back in March, Engine Capital began pushing for Civeo’s board to implement strategic changes that the activist fund believes could help unlock significant value out of the workforce accommodations provider. Civeo has started to listen to Engine’s recommendations, such as prioritization of buybacks over dividends. Engine also believes that CVEO, trading in the low-$20s today, could be worth as much as $50 per share in a sale.
ESSA Pharma (NASDAQ:EPIX): Soleus Capital Management, the largest shareholder of ESSA Pharma, is pushing for this struggling biotech firm to liquidate. According to Rohan Soor of substack Central Tendency, several of EPIX’s other large shareholders are likely to support a liquidation plan. Right now, shares trade for $1.68, or at a nearly 35% discount to the company’s cash and short-term investments.
Identiv (NASDAQ:INVE): As Dalius of Special Situation Investments discussed in a tweet back in May, activist Bradley Radoff is pushing for Identiv, an RFID company with a large cash position but experiencing heavy cash burn, to remove its Chairman and another director. Radoff is critical of the company’s decision to pursue a costly expansion of its RFID business, instead of putting itself up for sale. In time, this special situation could prove to an SVT-style outcome, but don’t count on it immediately. While pushing for changes this proxy season, Radoff stopped short of attempting to gain seats on the company’s staggered board at this year’s annual meeting.
Saga Communications (SGA): Earlier this year, shareholder Gate City Capital Management nominated four director candidates to stand election at this year’s annual shareholder meeting, citing concerns over the radio station owner’s digital transformation strategy. Gate City ultimately stepped back from this boardroom challenge, but management’s recent discussion of the sale of assets like tower sites suggests Saga is taking action to unlock value from this stock, which trades at a nearly 50% discount to book.
Recent Examples of Successful Activist Involvement
There are also situations where activists have successfully gained seats on the board, giving them the power to implement transformative changes. Among nanocap stocks, one example that comes to mind is Paragon Technologies (PGNT).
As seen from a spate of press releases, the boardroom battle continues at Paragon, but since the removal of the company’s longtime Chairman/CEO last year, quickly followed-up with the addition of several new names to the board, including Tim Ericksen of Solitron Devices (OTCMKTS:SODI) fame, shares are up by around 40%.
Even as shares trade not that far below their tangible book value, PGNT may have additional upside, in the event Paragon’s current leadership regime prevails in the proxy fight, and continues to sell of the holding company’s myriad of assets, which have run the gamut from a conveyor belt manufacturer to a Latin American electronics distributor to a portfolio of condotel units in Las Vegas.
Pitney Bowes (NYSE:PBI) is another recent example of successful microcap shareholder activism, although success with this campaign has resulted in PBI stock climbing into small-cap territory. Last year, Hestia Capital Management gained several seats on the business equipment maker’s board. Shares have since nearly doubled in price, following success with the activist-led turnaround.
This month, Hestia head Kurt Wolf took over as interim CEO, and the company has announced plans to conduct a strategic review. Only time will tell, but this could be the prelude to a sale of the company. Pitney Bowes has also announced plans to buy back up to $150 million worth of shares.
Screening for Possible Future Targets
Going beyond just investing in activist stocks from the sidelines, value investors may also want to explore investing in possible future activist targets. Moreover, investors, even those with relatively small positions in microcap and nanocap stocks may even be able to bring these stocks to the attention of activists, through platforms such as the Foundation for Shareholder Democracy.
Among microcaps/nanocaps trading at discounted valuations, with low insider ownership and therefore greater ability for an activist to put pressure on management, the following come to mind:
Astrotech Corporation (NASDAQ:ASTC): Thomas Boone Pickens III, T. Boone Pickens’ son, heads this unprofitable but cash-rich mass spectrometry technology company, but owns just 10.3% of shares. While there is already a 13D-sized shareholder, BML Investment Partners, on the scene, perhaps other investors willing to activist could step up, and push this company, with a market cap just under $10 million, to put its $20.9 million cash position, not to mention $88.2 million in net operating loss carryforwards, to better use.
Espey Mfg. & Electronics Corp (NYSE:ESP): This manufacturer of electronic equipment for military and industrial use has already zoomed 72.6% higher over the past year, thanks to earnings growth and a growing backlog. However, there may be room for upside, if an activist were to come in. Espey is sitting on $38.5 million in cash, or around 40% of its market cap. Putting this cash to use in an aggressive share repurchase would be a major needle-mover. Much like with Servotronics, larger aerospace/defense names like Transdigm may be interested in acquiring Espey. Although an ESOP owns around 22% of shares, an activist, if one were to emerge, could possibly make headway.
The Marketing Alliance (OTCMKTS:MAAL): Primarily a provider of back-office services to independent insurance brokerages, MAAL also dabbles in construction and equity investments. While on the surface MAAL doesn’t appear to be super-cheap, there may be several ways that the company could unlock some value. The Marketing Alliance’s cash position and equity portfolio are worth around $4.6 million total. Although the company has around $2.6 million in debt, this cash and securities position makes up nearly half of the company’s market cap. There may also be room for significant cost cutting, given the nearly $500,000 in related party transactions last year. Insiders each own less than 5% of outstanding shares, which perhaps pave the way for an activist to enter a position and make headway.
The Bottom Line
Don’t get me wrong: plenty of undervalued microcap and nanocap stocks can ultimately be value traps. Even in the case of Servotronics, during the decade prior to the recent bidding war, shares more-or-less traded sideways, while the S&P 500 nearly tripled in value.
However, by focusing on undervalued overlooked stocks that are experiencing some sort of shareholder activist activity,you may be able to minimize the opportunity cost and regret that comes from entering positions in “value traps.”
Yes, much like not every undervalued stock eventually gets acquired at a premium, not every activist campaign is successful. Even in cases where an activist is able to gain influence or control, poor execution as well as external factors can limit the ability of outsiders to unlock value.
Still, while not a silver bullet, the recent story with SVT, as well as the story with the other aforementioned stocks, demonstrate how a few “winners” among microcap/nanocap activism targets could potentially outweigh other activist situations that produce far less stellar returns.
DISCLOSURE: As of Publication, The author (Thomas Niel) held a position in PBI.
DISCLAIMER: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation from ALOT, ASTC, BDRL, CVEO, EPIX, ESP, INVE, MAAL, PBI, PGNT, SGA, SGMA, SODI, STRM, SVT, TDG or any other entity for writing this article. I have no business relationship with ALOT, ASTC, BDRL, CVEO, EPIX, ESP, INVE, MAAL, PBI, PGNT, SGA, SGMA, SODI, STRM, SVT, TDG, or any other company referenced.This article is for informational purposes only, and should not be construed as investment advice. Please consult your financial advisor before making any investment decision. Please be aware of the risks associated with trading ALOT, ASTC, BDRL, CVEO, EPIX, ESP, INVE, MAAL, PBI, PGNT, SGA, SGMA, SODI, STRM, SVT, or TDG stock. Do your own due diligence, and caveat emptor.
Thanks for sharing my write-up and for the article - Nice summary of a bunch of interesting situations