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.
3. BSD Medical (BSDM)This is a company with a very good product in search of actual customers. BSD's systems are used to treat certain tumors with heat (hyperthermia), while increasing the effectiveness of other therapies such as radiation therapy. The clinical data in support of BSD's devices have been quite strong. Trouble is, these devices are fairly expensive, and besides, BSD lacks an effective internal sales force to peddle such machines. That's where major medical device firms come in. Companies like Medtronic ( MDT) are always in search of hot new products to hand off to their sales force. I discussed Medtronic's challenging environment last summer. Nothing has changed since then. Sales are expected to grow less than 1% in the fiscal year that ends next month. Rivals such as Boston Scientific ( BSX) face a similar conundrum. BSD Medical could probably be had for around $200 million (50% above the current price). That price would bring minimal current revenue, but the promise of more significant long-term sales. As is the case noted with Savient above, though, BSD may need to show real sales traction before any potential suitors get serious.
4. Biodel (BIOD)Takeover chatter continues to swirl around this maker of an injectable insulin device that acts more quickly than existing devices. When the FDA pushed back and told Biodel in late October that it needed to conduct more tests, investors dumped shares, which have been stuck around $2 ever since. More clinical tests mean more spending and likely more dilutive capital-raising later in 2011. Although Biodel was rumored to be in play for $15 to $20 a share a few years ago, management would likely be happy to take $6 or even $8 for the stock these days. Still, that would be a pretty hefty gain from the current share price.
Action to Take: I'd be surprised if more than one of these names were acquired in 2011. That's just the nature of buyout rumors -- many are called, but few are chosen. Both Savient and Biolase look quite appealing even if a buyout never occurs. For BSD Medical and Biodel, the long-term picture would still be promising on a "go-it-alone" basis, but management will likely need to sell more stock in the next year or so to keep the well from running dry. This article originally appeared on StreetAuthority. To read more articles from David Sterman on StreetAuthority, you can visit this link . Disclosure: At the time of publication, David Sterman owned no positions in the stocks mentioned.