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Two tech stocks that make good takeover targets

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Tech stocks started gaining Wednesday following a spate of disappointing results last week and earlier this week. Facebook and Google led the surge as both announced plans of releasing new office software products and wearable technologies respectively. Whether or not this uptrend will go on in upcoming days, it only goes to show how quickly the market recovers, especially when most of the stocks propelling surge are overvalued.

Undervalued stocks are also driving market growth, some of which yielding high dividends to investors. (Yahoo, for instance, is often cited as one of high dividend-paying stocks on the market.) So if you are bullish on tech stocks, don’t forget to take into account undervalued stocks when shopping around.

Found below are two small tech stocks with huge upside potential and are ripe for a consolidation:

Spark Networks

Three days ago, Forbes.com columnist forecasted the possibility of consolidation activities happening in H2 this year, as more tech giants reap record earnings, and many small but promising tech stocks “selling at multi-year lows and at distressed valuations.” In determining the stocks that make good targets for takeover bids, Bryan Rich and his team examined undervalued tech stocks that have a huge potential, although the most significant qualifying measure, he noted, was if a speculator or hedge fund invested in the stock. One stock that made it to Rich’s list was Spark Networks (NYSEMKTS: LOV).

Spark Networks is a company that owns online niche dating sites such as ChristianMingle.com, JDate.com, BlackSingles.com, and also Spark.com. 15 percent of its shares are owned by Osmium Partners, which aim to fill in majority of the company board seats through proxy votes.

According Rich, JDate and Christian Mingle are possible acquisition targets. Christian Mingle, for instance, has over 10 million members, with 10,000 new users registering daily. “This company offers a perfect strategic fit for the likes of Match.com or eHarmony,” noted Rich in his column.

Audioboom Group PLC

Audioboom Group PLC (BOOM.L) is one of the fastest growing companies based in the United Kingdom with audiences concentrated in the UK (40 percent), United States (30 percent), Latin America (10 percent), and Australia (15 percent). Audioboom offers a Saas-based software called Audioboo, which allows clients to record, edit and distribute live audio clips from any location and capable device, 24/7. It has recently signed up CBS and Sky Sports as a media content partner. It is also partners with BBC and other major networks in the UK, Australia, South America and the US.

According to Arden Partners, a corporate stockbroker and equity research firm which initiated coverage on the stock, Audioboom makes for an “attractive” consolidation target, especially in its niche, where big-name players are always looking to acquire smaller services with stellar products to augment revenues. “The strength of Audioboom’s mobile offering, with a new app due to be launched in September, is a highlight of the investment case. We see Audioboom as a likely consolidation target as it executes its business plan,” Arden Partners stated in a report.

Audioboom is looking at doubling the size of its manpower in two years, and even as operational costs are bound to increase because of this, Arden Partners does not see it as a potential problem for the company. Based on Arden Partners’ estimates, Audioboom is capable of increasing its revenues from zero to £6.4m in 2016, with a modest £2.1m increase in operational costs.

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