The Wall Street Journal recently reported on the bidding war for for the Smith & Wollensky Restaurant Group (NASDAQ: SWRG). On Friday, Landry's increased its bid for for the restaurant chain to make it 5.4% higher than the offer the company received from the Patina Restaurant Group. The offer is for $84 million, 1/100th the size of many of the takeover battles that are dominating news coverage. But I believe that individual investors can systematically look for small companies that are ripe for takeover.

The stock closed Friday at $9.75 -- the exact amount Landry's offered, indicating that many investors expect it to go higher. When Landry's made their initial offer in mid-January, the stock traded around $5 per share. So the buyout price could reach a premium of 100% over the stock's price before it was in play.

- A stock trading around its liquidation value (this can be calculated by subtracting the a company's total liabilities from its current assets, which Benjamin Graham called a net-net).

- A company with a strong brand that would be a good strategic fit for a larger company.

- A stock trading at a low price/earnings multiple.

- A company without strong anti-takeover provisions.

While it is rare to find a stock meeting all of these criteria, a company with at least half of these is probably undervalued enough to make it a possible takeover target -- and thus a good investment opportunity.

Smith & Wollensky: Finding smaller buyout candidates originally appeared on BloggingStocks on Mon, 19 Mar 2007 10:52:00 EST. Please see our terms for use of feeds.