Ambitious Smaller Companies Hunt Big Prey as Bold M&A Returns

The improving environment for deals is encouraging some smaller firms to start hunting much larger prey.

Automotive supplier American Axle & Manufacturing Holdings Inc., which has a market value of $636 million, on Wednesday unveiled a $1.4 billion cash and stock acquisition of UK peer Dowlais Group Plc. American Axle structured the deal to include just enough cash so that its shareholders will own 51% of the combined entity.

Last week, Italian lender Banca Monte dei Paschi di Siena SpA launched an all-stock takeover bid for larger rival Mediobanca SpA. Monte Paschi currently has a market value ...