Report
Nicholas Cortellucci, CFA

Finding the Next Takeout in Canadian Small-Caps - Part Five

What you need to know:
• This series went on a brief hiatus through 2025 as takeouts of small-cap Canadian equities slowed down, however, things appear to be heating up again with a flurry of acquisitions happening over the last few months.
• Our potential takeouts portfolio is up 96% since inception, representing 37% annualized and is up 24% in 2025, slightly lagging the resource-heavy TSX last yer. The portfolio successfully predicted four takeouts.
• We review the biggest winners and losers in the portfolio and present a list of new ideas on our radar.

How Have Things Progressed?
Since our last note in January 2025, we saw a pause on acquisitions of Canadian small-caps for a number of months, before ramping up again in Q4. There were 24 takeouts in the space in 2025, compared to 31 in 2024. While valuations and fundamentals were both on the rise through mid-2025, we believe there is again a discount between the two for a number of stocks, providing an opportunity to strategic and financial buyers.

Our takeouts portfolio posted solid performance, being up 24% in 2025 and 96% since inception (37% annualized), compared to the resource-heavy TSX, which was up 27% in 2025 and 62% since inception. Please refer to page two for a review of our performance and changes to the portfolio going forward.

Do the New Acquisitions Fit Our Criteria?
Looking at the new takeouts, we outline how they fit into our 6-part framework below.

1) Poor Stock Performance – The new cohort of 24 takeouts was down 24% on average compared to their previous ATH. We continue to view this as a leading indicator that a firm is a takeout candidate given that acquirors are looking for discounted prices.
2) Cheap vs. U.S. & International Peers – This continues to be a trend, more so compared against U.S. peers. TRUBAR was a good case study for this, selling for 2.2x 2025E compared to previous takeouts of U.S.-based CPG brands at >3.0x.
3) Profitable – 18 of the 24 firms were profitable on an EBITDA basis over the last twelve months. This was 9 out of 11 in the last cohort, implying that the low hanging fruit has already been acquired. Nevertheless, profitability remains a strong indicator, especially for private equity buyers.
4) Solid Growth & Tailwinds – On average, the newly acquired companies grew revenue by 6% over the LTM and were expected to grow revenue by 29% next year.
5) Market Cap Over $30M – 20 of the 24 takeouts occurred at a valuation of over $30M, with the average being $443M. We will reiterate that the $100-300M market cap range seems to be the sweet spot for takeouts.
6) Private Equity Friendly – Only 7 of the 24 acquisitions were made by private equity firms, a major decline from the past trends. This can align with the expanding valuations through mid-2025, but we believe PE firms will become active again in 2026 as valuations are modest again in our view and PE dry powder remains historically high.
Underlyings
ADF Group Inc.

ADF Group is engaged in the design and engineering of connections, fabrication and installation of complex steel superstructures, heavy steel built-ups, as well as architectural and miscellaneous metalwork for the five principal segments of the non-residential construction market namely, office towers and high-rises, commercial and recreational buildings, airport facilities, industrial complexes and nuclear facilities, and transport infrastructures.

Biorem Inc.

Biorem is engaged in the business of providing technology biological filters for removal of odors, volatile organic compounds, hazardous air pollutants and for the conditioning of biogas renewable energy.

BQE WATER INC.

BQE Water is engaged in the acquisition and development of processes to treat metal-laden, sulphate-rich waste water streams for acid neutralization and metal recovery. The principal operations of Co. are to build process plants and earn revenues from recovered metals, treatment fees, plant sales and process licenses.

Covalon Technologies Ltd.

Covalon Technologies is a public medical technologies company that researches, patents, develops and commercializes medical technologies that improve patient outcomes and save lives.

CRESCITA THERAPEUTICS

Crescita Therapeutics is a Canadian drug development company with a portfolio of products and technologies. Co. operates two distinct business units: the Topical Products and Technology (TPT) Group and the Immunology Group. The TPT Group has one commercial product, a pipeline of topical and transdermal products focusing on pain and dermatology and multiple drug delivery platforms that support the development of patented formulations that can deliver actives into or through the skin. The Immunology Group has two commercial products: WF10™ and Oxoferin™.

D-Box Technologies Inc. (Cl A)

D-Box Technologies designs and manufactures motion systems for the entertainment industry. Co. generates motion effects specifically programmed for each film, television program, simulation equipment or video game. The resulting motion is synchronized with the on-screen action, thus creating a realistic immersive experience. Co. has two operating segments: original equipment manufacturers (OEMs) and commercial theatres. The OEM segment consists of consumer products for the home entertainment market: specifically video gaming, home theatre, industrial simulators and other applications. The commercial theatre segment consists of motion generation systems installed in movie theatres.

Diamond Estates Wines & Spirits Inc.

Enterprise Group

Enterprise Group is a construction services company operating in the energy, utility and transportation infrastructure industry. Co.'s focus is primarily underground construction and maintenance and specialty equipment rentals. Co. provides directional drilling and installation of underground power, telecommunications and natural gas lines to the utility infrastructure segment of the construction industry. Co.'s heavy equipment rentals division, E One Limited, provides equipment rentals for both the oilfield and civil construction sectors and project crews constructing pipelines and facilities.

Firan Technology Group Corp.

Firan Technology Group is a supplier of aerospace and defense electronic products and subsystems. Co. also provides prototype development and manufacturing services. Co. has two operating segments: FTG Circuits and FTG Aerospace. FTG Circuits manufactures printed circuit boards within the North America marketplace for the aviation, defence and related industries. FTG Aerospace manufactures illuminated cockpit panels, keyboards, bezels and sub-assemblies for original equipment manufacturers of avionic products and airframe manufacturers. Co. distributes its products primarily in Canada, the United States, Asia, Europe and other countries.

FORACO INTERNATIONAL SA

Foraco International is a drilling services company that provides turnkey solutions for the mining and water segments. Co. is organized in two business segments. The Mining segment covers drilling services offered to the mining and energy industry during the exploration, development and production phases of mining projects. The Water segment covers activities linked to the construction of water wells resulting in the supply of drinking water, the collection of mineral water, as well as the control, maintenance and renovation of the existing installations. This segment also includes drilling services offered such as geological exploration and geotechnical drilling.

Gatekeeper Systems Inc

HAIVISION SYSTEMS INC

Imaflex Inc. Cl A

Imaflex is engaged in the design, manufacture and sale of packaging materials including custom-made polyethylene films suited for various packaging needs; polyethylene garbage bags for both the retail and industrial markets; and the metallization of polyethylene film for specific agricultural usage.

Information Services Corp.

Magellan Aerospace Corp.

Magellan Aerospace, through its subsidiaries, is engaged in the engineering, manufacture, repair and overhaul of components and assemblies for the aerospace industry; the modernization, repair and overhaul jet engines, defense aircraft and helicopters; the design and manufacture of rocket and satellite systems; and the design and production of magnesium and aluminium castings, primarily for the aerospace industry. Co. operates in two segments, Aerospace and Power Generation Project. Co. has operations in Canada, the U.S. and the U.K.

Major Drilling Group International Inc.

Major Drilling Group International is a drilling service company primarily serving the mining industry. Co. is engaged in the business of contract drilling for companies primarily involved in mining and mineral exploration. Co. provides all types of drilling services including surface and underground coring, directional, reverse circulation, sonic, geotechnical, environmental, water-well, coalbed methane and shallow gas. Co. has operations in Canada, the U.S., South and Central America, Australia, Asia and Africa.

NeuPath Health

North American Construction Group Ltd.

Quorum Information Technologies Inc

Sylogist Ltd.

Sylogist is a software and services company providing enterprise information management solutions to municipal, education and private sector customers. Co. operates two division, the Enterprise Systems ("ES") division and Connectivity division. ES division provides an integrated suite of business applications to municipalities and school districts that serve their needs for revenue, finance and operations management. Solutions are delivered as customer installed solutions or supplied in a Softwareas-a-Service format. Connectivity division provides software to private and public sector customers that allows easier for integration between enterprise systems, mobile and custom applications.

TANTALUS SYSTEMS HLDG INC

Thermal Energy International Inc.

Thermal Energy International is engaged in the development, engineering and supply of pollution control, heat recovery systems, and condensate return solutions. Co.'s three operating segment are the waste energy recovery and air emission control segment where customers finance these projects entirely from their own resources or through Co.'s Thermal-AUD™ system whereby Co. finances the project and leases back the facility to the customer; and the condensate return system solutions segment through its acquisition of Gardner Energy Management Limited on July 1, 2008.

Titanium Transporation Group Inc.

Velan Inc.

Velan is engaged in designing, manufacturing and marketing on a worldwide basis a range of industrial valves for use in industries applications including power generation, oil and gas, refining and petrochemicals, chemicals, liquefied natural gas and applications, pulp and paper, and shipbuilding.

Provider
Atrium Research Corporation
Atrium Research Corporation

Atrium Research provides institutional quality issuer paid research on North American public equities using deep fundamental analysis. Our research reports are disseminated through Bloomberg, FactSet, Capital IQ, Reuters and many more, as well as through our social media and email distribution lists. 

Analysts
Nicholas Cortellucci, CFA

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