AllAboutAlpha | May 09, 2013 01:23AM ET
A recent publication on merger arbitrage strategies makes the case that global M&A activity will “remain muted” despite some bright spots.
PrevInvest, which describes itself as offering “leading intelligence and independent insight,” cited Dealogic in saying that M&A activity fell in 2012, 3% from 2011 for all deals. There was some pick-up in the first quarter 2013, with a surge of megadeals in the U.S. in particular. Notably, competing bidders have turned Michael Dell’s attempt to go private with his corporate alter ego into an auction.
On February 5, Dell announced that founder Michael Dell, along with Silver Lake Partners and with funding assistance from Microsoft (a $2 billion loan) planned a leveraged buyout of the public company. That proposal included a “go shop” period that was set to end March 23. Before the ending of the period, Blackstone Group LP made a preliminary offer, as did Carl Icahn. Blackstone has since bowed out, though Icahn remains very much in.
In the Asia-Pacific region, meanwhile, the first quarter has been very slow, with M&A volume at just $136.6 billion. That makes it the slowest first quarter in this space in nearly eight years.
Japanese Outbound Capital
Japanese companies in particular are scaling back their interest in acquiring, according to the report. This new sense of scale may have been catalyzed by the weak yen.
But the second half of last year saw two blockbuster deals by Japanese concerns looking for exposure in Vietnam. In the third quarter of 2012, Mizuho Financial Group bought a 15% stake in Vietnam Bank for Foreign Trade. In the fourth quarter, Mitsubishi UFJ Financial Group bought a 20% stake in Vietnam Joint Stock Commercial Bank for Industry & Trade (VietinBank).
Japan’s own deflationary spiral is motivating an “outbound” movement of capital. in such acquisitions, by limiting at-home opportunities.
PrevInvest’s database for the risk arb strategy shows a 0.63% average return for the first two months of the year. Over the twelve-month period that ended February 28, 2013 the average return was 3.58%
All in all, though, PrevInvest takes “a cautious stance of the outlook for risk arbitrage … strategies for the current year.”
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