Shares of Magnetek Inc (NASDAQ:MAG) are up by over 53% in trading today as the producer of power supply systems for the material handling industry (among others) was bought by one of the leading producers of material handling products, McKinnon Corp. (NASDAQ:CMCO). Shares of McKinnon meanwhile are up slightly after briefly vaulting by nearly 10% earlier in the day. The $188.9 million deal will pay shareholders of Magnetek $50 per share in an all-cash transaction. Magnetek’s shares have vaulted to $49.50 in trading as a result, with seemingly little in the way to prevent the merger from being completed. McKinnon Corp. (NASDAQ:CMCO) believes numerous synergies will be unlocked through the deal, including being able to offer its customers a wider and more complete range of material handling solutions, and the ability to expose Magnetek’s technology through McKinnon’s vast network of sales channels. As of March 31 at least, there were few hedge funds in our database who stood to prosper from the deal, with Jim Simons’ Renaissance Technologies holding the largest position in Magnetek Inc (NASDAQ:MAG) within our database, and a relatively small one at that.
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish in McKinnon Corp., down by one from three months earlier. Meanwhile, just three funds had holdings in Magnetek as of the same period, also down by one from the end of 2014. In terms of capital invested by the funds in each stock, there was relatively little change over the course of the first quarter.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 139% and beating the market by more than 80 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Insider trading was relatively sparse in both companies in the first half of the year, with no activity taking place among Magnetek’s insiders, and only a handful of insider sales by McKinnon insiders. The largest was by VIP of Human Resources Richard Steinberg, who sold 8,647 shares on February 25.
Let’s take a closer look at the key smart money action surrounding Columbus McKinnon Corp. (NASDAQ:CMCO) and Magnetek Inc (NASDAQ:MAG).