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4 Small Stocks With Buyout Rumors

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Sterman

NEW YORK ( StreetAuthority) -- With a rising economy comes rising expectations. CEOs at mid-sized and large companies need to find new paths to growth to justify -- or boost -- their company's stock price. That's no mean feat in an economy still in slow-growth mode. As a result, expect to hear about plenty more deal-making in 2011 as smaller companies get acquired to help jumpstart the top line.

To be sure, acquiring companies don't want to buy a company many years from generating its own action. Instead, they want companies that have already done a lot of heavy lifting, developing new products and the marketing plans to support them.

I've identified four small companies that are truly ripe for a deal. Investors should take a close look at these firms.

1. Savient Pharma (SVNT)

This company has been practically begging "buy me." After receiving Food and Drug Administration approval for a new and highly-effective drug for the treatment of gout, the company declared it had no intention of remaining solo. Speculation that a major pharmaceutical company such as Bristol-Myers Squibb (BMY) or Pfizer (PFE) would snap up Savient pushed its stock up north of $20 last September. When the company admitted it couldn't find a taker, shares plunged and are now below $10.

Since then, Savient has decided to build a sales force and will start to generate its own sales until a buyer emerges. Sales began in the fourth quarter of 2010 and are expected to hit $10 million per quarter by the third quarter of 2011. Just this week, Savient received a significant endorsement when the Department of Veterans Affairs signed up for a five-year purchase agreement. (It is estimated that one in seven gout sufferers is a U.S. veteran.)

The VA deal may be the catalyst that brings potential suitors back to the table. Savient could secure $40 million in revenue this year and perhaps double that in 2012. Analysts at Global Hunter Securities predict annual sales may eventually top $500 million. Those are the kinds of numbers that get the attention of Big Pharma. With or without a buyout, this stock looks quite undervalued. A buyout would simply help the stock to arrive at its destination much faster.

2. Biolase Technologies (BLTI)

I profiled this company two months ago and shares have risen 175% since then. That may not be the end of it. Shares may surge yet higher if takeover rumors are to be believed.
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